Consumer Duty - A work in progress

The Financial Conduct Authority’s (FCA’s) Consumer Duty officially came into action over a year ago, with an implementation deadline of 31st July 2023 for all new and existing products and services.

The regulator favored a phased approach, with different obligations landing at different stages throughout the adaptation. This concluded in July 2024, the deadline for closed products and services, and also for firms’ first annual reports on complying with the new regulations.

The one-year anniversary is an appropriate milestone to assess the Duty’s impact so far, how well it has fulfilled its objectives, and how we’re likely to see it evolve.

Duty calls

In 2022, The UK Financial Conduct Authority’s (FCA) shared a document setting out its overarching strategy for the next three years. The Consumer Duty was labeled ‘the cornerstone’, built to modernize the British financial sector and regulatory system, to strengthen the attractiveness of UK capital markets post-Brexit. Amid a cost-of-living crisis and a post pandemic rise in e-commerce, consumer protection found itself at the top of the agenda.

That overarching premise was broken down into four target areas – Products & Services, Price & Value, Consumer Understanding, and Consumer Support.

In the run up to its introduction, there was a lot of confusion around the Duty; who it applied to, what actions needed to be taken, and how progress and adherence would be measured.

A work in progress 

The Consumer Duty’s first milestone occurred on the first day of its implementation.

The FCA asserted its authority straight away,  taking steps to ensure consumers benefited from higher interest rates in the savings market. This immediately demonstrated that the regulator meant business, and was fighting to help consumers wherever possible.

The FCA released  data in February 2023 which showed that 43% of the firms surveyed had no difficulty implementing the duty. While framed as a positive, this does show that the majority had encountered some issues.

The regulator promptly shared guidelines on what firms were doing well and what could be improved. This contained six segments comprised of the four target areas as well as sections on Culture, Governance and Monitoring and Consumers in Vulnerable Circumstances. It provided immensely detailed overviews for each of these six sections, and while most of the feedback provided on firms’ activity so far is positive, it also provides a great deal of direction for those that are having difficulty.

This level of analysis, positive reinforcement and prescriptive guidelines, as well as the speed of its turnaround, suggests that the FCA is committed to delivering a successful Consumer Duty, and that they have acknowledged that it’s a constant work in progress.

FCA perspective 

On July 31st 2024, Sheldon Mills, FCA executive director of consumers and competition, gave a speech assessing the impact of the Duty a year after its introduction. He reiterates what we have surmised above, albeit providing the kind of positive assessment that you would probably expect from one of the champions of the new rules under scrutiny.

“The Duty is already having a tangible impact on consumer outcomes. And it has been driving improvements in firm culture, conduct and governance too, which over time will drive better outcomes still.

“Some firms have changed their employee bonus structures to make sure that incentives are right, and employees only get good outcomes when their customers do.

“We are also seeing firms being more proactive with their communications, contacting customers to provide information on what better products may be available, and monitoring the impact so they can learn and improve. And many are rewriting those communications to make them simpler and easy to understand.”

The language is vague and non-committal, with no real examples shared of the successes being discussed, but instead ‘some’ and ‘many’ firms. While this could simply be a case of Mills not deeming it necessary to qualify every statement, it does feel vague and suggests that the Duty’s impact so far may have been underwhelming or unproven, at least in terms of the data available.

Negative feedback 

Despite the FCA’s assertions, feedback from elsewhere suggests there’s still lots of room for improvement.

A year on from the Duty’s introduction, Abby Thomas, chief executive of the Financial Ombudsman Service, said poor administration and customer service continue to be  the biggest areas of complaint.

“We now regularly receive complaints about things that have happened since the Duty’s been in force... Overall, poor administration and customer service continues to be one of the biggest areas of complaint. This could be about poor service, lack of timely support, or broken promises,”

According to  research from Moneyhub, an engagement, data and customer journey platform,  41% of customers have not noticed any changes to their treatment since the regulations came into effect. The research, which polled 2,000 UK consumers, found that just 22% had noticed any positive changes.

The end of the beginning

Despite some negativity on its impact so far, many customers believe that the Consumer Duty will significantly affect how firms interact with them. 40% believe it will improve customer service, rising to 48% of younger respondents.

Above all else, firms will now  need to evidence the action they have taken to improve consumer outcomes, and they will need to do so with hard data. Firms have delivered their first annual Consumer Duty board report, showing that they have met the requirements of the Duty and are also making progress on delivering good outcomes for their customers. The FCA is increasingly data-driven, and wants the companies under its jurisdiction to commit to constant evolution and improvement. That means tangible facts and figures and demonstrable upgrades, year on year.

At the Consumer Duty: One Year On event, Sheldon Mills continued, “UK financial services are not in need of a resurrection. We are rightfully proud to have one of the most dynamic, capable, and innovative financial services industries in the world.

“But today does mark something of a new start. A year ago, the Duty came into force for open products and services. Today it comes into force for closed products and services. You’ve heard this from us before, but the Consumer Duty was never going to be a once and done act. It is an ongoing journey for improvement that we’re on together.

"We know we have more to do. This is not the beginning of the end for all of our efforts to implement the Consumer Duty, but the end of the beginning.”

There’s a long way to go, but that troublesome first hurdle has been cleared. The FCA has bet the house on this initiative, and as demonstrated by the level of detail in its feedback so far, is doing everything in its power to ensure it continues improving. After all, that’s what it expects of the firms it regulates, who must find the right tools to demonstrate improved consumer outcomes