Consumer Duty: A Guide for Payment Institutions (API) and Electronic Money Institutions (EMI)

Francesco Fulcoli - Chief Compliance Officer

Consumer protection is of utmost importance in the financial services industry, particularly for payment institutions and Electronic Money Institutions (EMIs). The Financial Conduct Authority (FCA) has introduced the Consumer Duty Plan to enhance consumer outcomes and establish clear expectations for these entities. This article provides a detailed overview of the Consumer Duty Plan, specifically tailored for payment institutions and EMIs, outlining its implementation strategies and the FCA's expectations for these organizations.

Understanding the Consumer Duty Plan for Payment Institutions and EMIs

The Consumer Duty Plan is a comprehensive framework designed to protect consumers from potential harm caused by financial services firms. For payment institutions and EMIs, the plan emphasizes specific considerations to ensure consumer welfare. The key elements of the Consumer Duty plan relevant to these entities include:

1. Duty of Care: Payment institutions and EMIs are expected to act in the best interests of their customers by providing fair treatment and exercising reasonable care to prevent foreseeable harm. This duty includes ensuring the safety of customer funds, protecting against fraud, and providing efficient and reliable payment services.
2. Duty of Skill, Care, and Diligence: This duty highlights the importance of maintaining high professional standards, ensuring employees have the requisite skills and knowledge to fulfil their roles effectively. Compliance with anti-money laundering (AML) and Know Your Customer (KYC) regulations is crucial. Maintaining high professional standards, training employees effectively, and conducting risk assessments are key aspects of fulfilling this duty. It also includes the need to handle customer complaints and queries promptly and competently.
3. Duty to Communicate Appropriately: Payment institutions and EMIs should communicate clearly, transparently, and in a manner that is accessible to their customers. This involves providing comprehensive information about services, fees, transaction processes, risks, and any limitations or restrictions that may apply.

Implementation Strategies for Payment Institutions and EMIs

To implement the Consumer Duty plan effectively, payment institutions and EMIs should consider the following strategies:

1. Compliance Framework: Develop a robust compliance framework that aligns with the Consumer Duty plan. This includes conducting regular internal reviews, risk assessments, and audits to ensure adherence to the duty of care, skill, care, and diligence, as well as appropriate communication practices.
2. Staff Training and Competency: Invest in ongoing training programs to enhance the skill sets and knowledge of employees. This includes educating staff on regulatory requirements, consumer protection principles, fraud prevention techniques, and effective communication practices.
3. Customer-Centric Culture: Foster a customer-centric culture within the organization. This involves instilling a strong sense of responsibility and prioritizing consumer interests throughout all levels of the institution. Encourage feedback from customers and use it to improve products, services, and customer experiences.
4. Robust Risk Management: Implement effective risk management processes and controls to identify and mitigate potential harms. This includes adopting robust AML and KYC procedures, implementing strong cybersecurity measures, and continuously monitoring transaction activities for suspicious or fraudulent behaviour. 

FCA Expectations for Payment Institutions and EMIs

The FCA has set specific expectations for payment institutions and EMIs regarding the Consumer Duty plan. These expectations include:

1. Customer Protection: Demonstrate a commitment to protecting customer funds and providing secure payment services. Establish appropriate safeguards against fraud, implement strong authentication measures, and promptly address any customer complaints or disputes.
2. Compliance and Regulatory Obligations: Fulfill all regulatory obligations, including AML and KYC requirements, data protection regulations, and relevant licensing obligations. Regularly review and update compliance procedures to align with evolving regulatory standards.
3. Transparent Communication: Provide clear, accurate, and accessible information to customers regarding payment services, fees, charges, and any associated risks. Ensure that customer communications are free from jargon or complex language that may confuse or mislead consumers.
4. Continuous Improvement: Regularly assess and enhance internal processes to ensure compliance with the Consumer Duty plan. Actively seek feedback from customers and use it to improve services, address shortcomings, and enhance consumer experiences.

The Consumer Duty plan sets clear expectations for payment institutions and EMIs to prioritize consumer welfare. By adhering to the duty of care, skill, care, and diligence, and practicing transparent communication, these entities can build trust, enhance consumer outcomes, and contribute to a fair and secure financial services ecosystem. Embracing the Consumer Duty plan not only protects consumers but also strengthens the reputation and credibility of payment institutions and EMIs in the marketplace.

Consumer Duty and Vulnerable Customers: Enhancing Protection and Support

In the realm of consumer protection, the concept of the Consumer Duty is closely intertwined with the need to safeguard vulnerable customers. Vulnerable customers are individuals who, due to personal circumstances or characteristics, are more susceptible to harm or exploitation in their interactions with financial services providers.

Vulnerable customers encompass a wide range of individuals who may face difficulties or disadvantages when engaging with financial services. Vulnerability can arise from various factors, including physical or mental health conditions, age, low literacy, low income, or life events such as bereavement or divorce. It is essential to recognize and address the unique challenges faced by vulnerable customers to ensure their financial well-being.

The Intersection of Consumer Duty and Vulnerable Customers

The Consumer Duty plan explicitly acknowledges the significance of protecting vulnerable customers. It requires financial services firms to adapt their practices and provide tailored support to meet the specific needs of these individuals. The following key considerations highlight the intersection between the Consumer Duty and vulnerable customers:

1. Duty of Care for Vulnerable Customers: Financial firms are expected to exercise an elevated duty of care toward vulnerable customers. This involves identifying and understanding the characteristics and circumstances that make individuals vulnerable, implementing appropriate safeguards, and taking steps to prevent harm or exploitation.
2. Enhanced Communication: Clear and transparent communication is crucial when dealing with vulnerable customers. Financial firms should adapt their communication strategies to accommodate different levels of understanding, using plain language and providing additional support, such as accessible formats or language assistance, as required.
3. Training and Competency: Firms must ensure that their staff receive adequate training on identifying and responding to vulnerability. This includes developing empathy, understanding the potential challenges faced by vulnerable customers, and knowing how to provide appropriate assistance and support.
4. Tailored Products and Services: Financial firms should consider the specific needs of vulnerable customers when designing and offering products and services. This involves creating accessible and inclusive offerings that meet their requirements while minimizing potential risks and negative outcomes.
5. Supportive Practices: Firms are encouraged to establish processes and policies that promote early detection of vulnerability and provide appropriate support. This may involve for example offering flexible repayment options, providing guidance on managing finances where appropriate, or signposting individuals to external support services.

FCA's Approach to Vulnerable Customers

The FCA has emphasized the importance of addressing the needs of vulnerable customers and expects firms to implement the following practices:

1. Vulnerable Customer Strategies: Firms should develop and implement comprehensive strategies focused on vulnerable customers. These strategies should encompass internal training, policies, and procedures aimed to identify those customers, enhancing customer outcomes and minimizing harm.
2. Training and Awareness: The FCA expects firms to provide regular training to staff to increase their awareness and understanding of vulnerability. This training should equip employees with the necessary skills to identify and respond appropriately to vulnerable customers' needs.
3. Culture and Governance: Firms should foster a culture that prioritizes vulnerability considerations and embeds appropriate governance structures to ensure ongoing compliance with the Consumer Duty. This includes regular reviews, assessments, and reporting on vulnerability-related practices.
4. Collaboration and External Support: Firms are encouraged to collaborate with relevant organizations and support networks to enhance their understanding of vulnerability and access additional resources for assisting vulnerable customers effectively. 

The Consumer Duty and the protection of vulnerable customers are intrinsically linked. Financial services firms have a duty to recognize, support, and protect vulnerable customers by adapting their practices and offering tailored solutions. By integrating vulnerability considerations into their operations, firms can fulfil their obligations under the Consumer Duty, promote positive customer outcomes, and contribute to a more inclusive and compassionate financial services sector.

The Role of the Consumer Duty Champion

The Consumer Duty Champion is an individual nominated by the board to work closely with the Ceo and play a critical role in supporting and advocating for consumer rights and protection within the organization. The FCA does not outline specific expectations for consumer duty champions and is not a ‘prescribed responsibility’ under the Senior Managers & Certification Regime (SM&CR). Firms can set it up in a way that fits with existing roles and responsibilities on their Boards.  They generally support efforts to:

1. Advocate for Consumer Rights and Protection: Consumer duty champions can advocate for robust consumer protections, fair treatment, and responsible conduct within the organization. They can provide feedback on proposed changes, voice concerns, and offer recommendations to strengthen consumer safeguards.
2. Promote Consumer Awareness and Education: Champions can assist the company in its objective of promoting consumer awareness and education. They can collaborate with all departments within the organizations in disseminating information, conducting outreach programs, and raising awareness about consumer rights, protection and responsibilities under the Consumer Duty.
3. Share Insights and Research: Consumer duty champions can contribute valuable insights and research on consumer trends, issues, and challenges. By sharing their findings and experiences with the organization, they can assist in shaping regulatory policies and initiatives that better align with consumer needs.
4. Collaborate on Consumer Protection Initiatives: The FCA welcomes collaboration with consumer organizations and advocates to collectively address consumer protection issues. Consumer duty champions can participate in industry working groups, task forces, or advisory panels to contribute to discussions, share best practices, and help develop effective consumer protection measures.

While the specific expectations of consumer duty champions may evolve over time, their role in advocating for consumer rights and protection, and supporting the goals of the Consumer Duty, is generally regarded as important in promoting fair and transparent financial services for consumers and protecting them from any harm.