Why the FCA’s Consumer Duty Regulations Will Create a New Opportunity for Fintech

The FCA’s new consumer duty regulations, coming into force on the 27th of July, require firms to deliver good outcomes for retail customers. Financial Institutions are concerned about the new regulations, often requiring them to overhaul many processes left untouched for decades on end. Herein lies the golden opportunity for nimble fintechs; by building new and innovative technology to improve tiring processes, fintechs can enable demonstrable improvements to the consumer journey.

A Challenge for Traditional Financial Firms

The FCA’s latest publication concerning the impending Consumer Duty regulation states that firms providing financial services must take actions to deliver good outcomes for retail consumers, relating to the product provided, pricing and customer support. The finance community is understandably concerned about the impact of these regulations on the sale of existing financial services, often relying on tried and tested customer service and marketing doctrines.

The most daunting challenge for firms is the cost of compliance, ensuring that all products are designed well, priced fairly, effectively communicated, the customer understands them and receives the right level of support. In demonstrating to the FCA that they have considered the customer’s best interests at every stage, traditional firms are now forced to think differently and focus on a new element of the product development journey. However, a growing willingness to adopt solutions built and hosted by fintechs may be many firms’ silver bullet.

How Fintechs Can Help

The fintech industry was created by entrepreneurs devising innovative solutions to supplement traditional financial firms’ inefficient development processes and drive internal change. Consumer duty will be no different; fintechs can help by providing better information to customers on specific products without significantly increasing the overhead for firms through cloud-based API-first digital products. It is difficult to express the extent of the overhaul needed - firms will be required to remove jargon throughout their messaging, ensure all communication channels are accessible, and completely adhere to customer data preferences, among other requirements. Therefore, there is a clear role to play for ambitious founders; by addressing a headache for teams grappling with the new regulations, fintechs will become embedded in a firm’s technology stack.

Solving the Evidence Shortfall

One stipulation of the FCA’s new regulations is that firms must demonstrate that no foreseeable harm is caused to the customer in achieving the firm’s financial objectives. This creates another challenge for the finance industry, which will soon be required to produce evidence to support their claims of compliance. Although financial firms have heavily invested in data collection, this data is often stored in Silos and will be difficult to leverage when reporting to the FCA. Fast-moving fintechs will be able to integrate with financial firms to produce KPIs to clearly demonstrate their focus on positive outcomes for customers.

Fintechs may also have a role to play in helping employees understand how they are adhering to the new regulations. A 2022 report conducted by EY found that 94% of the employees do not know how their firm will have to change in order to comply with the new regulations. Bringing to market infrastructure designed to promote consumer-focused principles throughout the organisation, including consumer-facing infrastructure, reporting analytics and compliance tools, will be a key area of focus for founders throughout the fintech industry.

During a period of harsh macroeconomic conditions, firms are dealing with a particularly tough set of new regulations from the FCA. However, by maintaining an open approach to partnering with Fintechs, firms will be able to come out on top after the consumer-duty free for all.