Written by Chris McCullam on Monday 18 March 2013
So then, tell me about your products? Can you describe the manufacturing process? Where do you source your materials? What quality control checks do you have in place? What are your component failure rates? What is the cost per unit? What is your route to market? How do you differentiate your product?
All good questions for a software company or widget maker, but how do you apply them to Financial Services?
The FCA is intending to improve market regulation to reduce customer detriment by intervening earlier in the value chain, even stopping a product before it hits the market. Regulating earlier and more stringently at the factory and wholesale side is seen as a way to remove some of the market weaknesses before they can impact a consumer, though with the understanding that too heavy a regulatory hand can stifle innovation and damage a market; there have been some steps in this direction with the FSA work on the sale of UCIS and structured products.
The angle of attack is geared toward understanding whether the product has any ‘indicators of problematic product features’. Once identified a product will be assessed not only in terms of its features and objectives but the corporate and market framework within which it sits: target markets, distribution strategies, product oversight and product strategy.
Financial Services products are complicated things, often made more complicated by the multiple layers, combinations of features and options that can be applied – to say nothing of when multiple products are bundled together. Something that is often already a challenge as a new product moves from design into delivery, from Marketing to IT, is how do you go about effectively demonstrating the subtleties of your products in an effective, repeatable and consistent manner? Throw into this mix another interested party, the regulator, and ask how do you demonstrate that you have a robust process for assessing new and existing products and that those processes aim to deliver good outcomes for your customers?
The FCA is clearly interested in the answer: “we would expect the sorts of standards that consumers associate with basic vehicle safety or over‑the-counter medicines”, and suggests a strongly model-driven approach to achieving this in ‘The Journey to the FCA’. One of the things that struck me most about the paper was the emphasis on models; firm systematic frameworks, business models, product models, risk & control frameworks and behavioural economics models all get a mention. Naturally we agree; if you know Altus at all you will know that the use of rigorous frameworks and models is central to our structured and highly visual approach – I won’t go on about it here as there’s plenty of material on the website about our techniques.
To support an organisation through a change programme, define new propositions, manage regulatory impacts and identify improvement opportunities (amongst many other things) you need to have a clear view of that organisation. The benefit of using models and frameworks to do this are immense; for instance the logical capability view of ‘what’ a business does creates a harmonised view on which to hang many flavours of analysis. Combining simple representations of product features and specifications with visually rich depictions of the design process and customer experience to communicate across multiple stakeholders can help in ensuring those ‘widget’ questions can be answered clearly and effectively.
Placing models at the core is something that was prominent in the ‘Journey to the FCA’, outlining how the FCA will be different to the FSA – the challenge faced post LCO will be that the difference can be seen between the two regulatory outlooks; to borrow from my favourite model based movie will we be able to see the difference between ‘Blue Steel’ and ‘Magnum’.
PS – in case you have no idea what that means, please take some time to watch Zoolander; I’m sure you won’t regret it.