With the UK’s Consumer Duty standard due to come into force this month, it is time for a recap on its objectives, how it is working to improve consumer protection for financial firms, and what can be expected from the annual board attestation on 31 July 2024.

Good outcomes for customers

Announced by the Financial Conduct Authority (FCA) in 2021 and enforced on 31 July 2023, the Consumer Duty standard is described by the Guardian as the UK financial services’ “biggest overhaul in 20 years”. The act is designed to “deliver good outcomes for retail customers” – including financial harm reduction and objectives support – by instructing organisations to take a closer look at their user journeys, products, and anti-fraud measures. Under this standard, entities are held accountable by the FCA if evidence is found that end-users are being put at unnecessary financial risk. The treasury select committee, for example, is detailed with monitoring how well banks observe this new directive.

The three components

The Consumer Duty standard is armed with a trident of injunctions – the Consumer Principle, cross-cutting rules, and the ‘four outcomes’ – which can be encapsulated thusly:

1. The Consumer Principle

The implementation of Consumer Duty saw a twelfth principle added to the FCA’s umbrella Principles for Businesses. Known as the ‘Consumer Principle’, which requires firms to act to deliver good outcomes for retail customers, it essentially reflects the board’s facility to apply these rules to firms over both their regulated and unregulated activities. The FCA says: “Our focus is primarily on regulated activities when advancing our operational objectives of consumer protection and promoting competition in the interests of consumers.”

2. Cross-cutting rules

The imperative of acting “in good faith towards retail customers” is detailed in the FCA’s cross-cutting obligations declaration. According to the literature, “acting in good faith is a standard of conduct characterised by honesty, fair and open dealing and acting consistently with the reasonable expectations of retail customers.”

Since it is simpler to offer definition by negation, we can say that examples of a firm not acting in good faith might include: ignoring customers’ goals, manipulating emotions or

behavioural biases to contrive demand, playing on financial vulnerabilities for profit, or expediting processes and services only when it suits the supplier.

The cross-cutting obligations exhaust what is required under Principle 12, acknowledges the FCA.

3. The ‘four outcomes’, namely –

· governance of products and services

· price and value

· consumer understanding, and

· consumer support –

are perhaps the most significant aspect of the Consumer Duty standard. They act as a bellwether for the success of the entire regulation. Governance, for its part, is as critical in the retail space as it is any other. The FCA notes on its site that providers should “offer products and services that are right for [consumers], rather than pushing products and services [consumers] don’t need.” In practice this could mean, for instance, tailoring the sales process to customers’ spending history or behavioral patterns.

Fair delivery of value, in relation to the price paid for the service, is perhaps the most prescient of the ‘four outcomes’ for consumers today. This should mean that customers won’t, in the parlance of the FCA, “be ripped off or have to pay [unexpected] costs.” While this does seek to engender fairer price-points, it does leave room for the possibility of better deals – so consumers are still advised by the authority to “shop around”.

To help improve consumer understanding around the oft-opaque character of financial services, the FCA also encourages “timely and clear information [consumers] can understand, so [consumers] can make good financial decisions. This means important information shouldn’t be buried in lengthy terms and conditions.” A welcome measure for today’s shoppers – with less time and more demand for efficiency than ever before.

When it comes to the support piece, retail consumers should expect “helpful and accessible customer support, so it's as easy to sort out a problem, switch or cancel [the] product, as it was to buy it in the first place.” Under this injunction also falls consideration of vulnerable end-users – perhaps in poor health or financial difficulty. The FCA reminds us that these four outcomes “help to define what is required by Principle 12 and the cross cutting obligations, but do not exhaust those rules.”

An annual review

But Consumer Duty is not a once-and-done initiative. On 31 July 2024, the first annual board attestation will take place – a chance to review how effectively the measures discussed will bolster consumer protection, and explore the next steps.

The board will be marking against outcomes such as consumers’ level of confidence and participation in retail markets, the comparative year-on-year volume and severity of incident reports, as well as the extent to which the diverse needs of consumers are being met.

So, has the financial sector responded constructively to the FCA’s intervention? Has harm been minimised in any failures to do so? Are exclusion rates falling? As ever, such questions can only be answered if firms have maintained an organised record of complaints and their responses. Finextra will keep you posted on proceedings.