In force since
31 July 2023, the Financial Conduct Authority (FCA)’s
Consumer Duty regulation was designed to improve financial services protections for consumers. Since the go-live date, firms have made numerous improvements, and better, fairer outcomes are being delivered to customers. Yet, there remains room for firms
to improve, and to build on their
fair value frameworks.
In this article, using the FCA survey
‘Consumer Duty implementation: Good practice and areas for improvement’, Finextra considers six areas of consumer outcomes that firms should be focusing on today; the best practices to upscale them; as well as some ideas for going beyond mere compliance.
1. Culture, governance, and monitoring
The goal
Consumers have abundant confidence in retail financial services markets, and benefit from healthy market competition. This requires firms’ compliance with Consumer Duty’s cross-cutting rules; avoiding causing undue harm; and supporting customers in
achieving their financial objectives.
Going beyond compliance
The FCA’s
report, based on a progress survey among relevant firms, suggests the following:
- Consumer Duty should be understood across the board, from risk and compliance teams, to product design, and post-sale support.
- The Duty should also be discussed by the board and among the C-suite. This means not only considering what the regulation means for senior executives – culturally and in practice – but how bonus structures could be re-designed to drive positive outcomes
for end-users.
- Firms are advised not to simply “wait and see” if the FCA intervenes. Should the FCA step in, the process becomes more complex and resource-intensive for the firm in question – particularly if consumer redress is due. It is essential to mitigate risks of
consumer harm proactively.
- Data and monitoring practices could be developed further. This does not simply mean “repackaging existing data” – rather, an in-depth evaluation of the kinds of information required that would serve to materially improve consumer outcomes.
2. Consumers in vulnerable circumstances
The goal
Vulnerable consumers – defined as individuals who are particularly exposed to short and long-term emotional, mental, physical, or financial challenges –
enjoy outcomes as positive as typical consumers. Achieving this requires addressing the additional needs of the vulnerable and accounting for their unique circumstances.
Going beyond compliance
- Firms should definitively address the issues in processes that track “vulnerable customers across multiple product sets and gaps in data and servicing capabilities.” Ask: Where exactly are the vulnerable customers? Why do they receive sub-optimal outcomes?
How can this be resolved in each unique case?
- Firms should be cautious about assessing all customers over a certain age as vulnerable. While there is a correlation, such analyses are ham-fisted and miss an opportunity to tailor support to individuals’ needs.
- Servicing should not be restricted or altered detrimentally for those identifying as vulnerable. Rather, it should be designed with them in mind, from the get-go.
- When passed between internal teams, consumers should not be repeatedly asked for the same data, pertaining to their additional needs or personal circumstances. All such information should be centralised.
- More generally, a firm’s entire approach may be reviewed with the vulnerable in mind. This includes systems, processes, operations, staff, data capture, and communications.
3. Products and services
The goal
Consumers are sold only those products and services which
meet their needs. Harm will be caused by poorly designed or poorly targeted products.
Going beyond compliance
- Monitoring practices could be refined so that customers who purchased a service, despite falling outside of the target market, can be tracked, contacted, and supported.
- Firms may wish to increase emphasis on consumer research and testing so that products are more effective at meeting their needs. The other piece is making consumers’ choices easier by simplifying products so that the features do not overlap with others.
- In some scenarios, firms could consider more than just their own activities – and ensure the actions of other parties in their own distribution chain are delivering positively.
4. Price and value
The goal
Consumers receive products and services of
fair value. This goal encapsulates more than just the price tag, it is about considering all the factors that contribute to poor value, including unsuitable features, poor communications, or a lack of consumer support.
Going beyond compliance
- The total cost-to-value ratio should not just be evaluated through comparison to a like-for-like product in the same market. “This alone does not prove that the customer is getting a good deal,”
says the FCA, advising firms to reach for qualitative reasoning.
- Once the review of pricing models has been completed, firms may wish to boost the value delivered to customers by enhancing the benefits of their products and services. This could include better interest on investment products or capping fees for long-term
clients, for example.
- The same fair-value review could be run for the entire distribution chain – and information should be provided up and downstream to enable other firms in the chain to similarly assess value.
5. Consumer understanding
The goal
Consumers understand all the information they are given and can use it to make informed choices. This means presenting the right data, at the right time, in the right manner.
Going beyond compliance
- Firms could work with communication experts to redesign user journeys; develop customer understanding frameworks; and improve language, layout, presentation, accessibility, and transparency, across all channels.
- Consumer interaction points and materials could be updated via new technologies and data, staff training, and all-round proactivity.
- Firms should also constantly test consumer understanding levels through surveys, experiments, and interviews.
6. Consumer support
The goal
Consumers have access to
effective support. This means removing unreasonable barriers and introducing timely help.
Going beyond compliance
- Firms should assess all user journeys and ensure any obstacles are removed, which would prevent consumers from acting in their own interests. This may include relying less heavily on gamification for engagement or enabling end-users to exit products through
a wider array of channels.
- In the context of customer journeys, further positive interventions could also be considered. This may include offers to speak directly with an agent, or further touchpoints to ensure safe decisions are being made.
- Furthermore, staff training could be honed to provide pointers on how complex conversations with consumers should be carried – once again, with the aim of boosting good outcomes.
- Processes should be put in place to monitor the support’s effectiveness – in a continuous, as opposed to discreet, manner.
For the greater good: Driving confidence in markets
Through the Consumer Duty act, the FCA has taken a decisive position on how firms should better protect end-users. For organisations interested in going beyond mere compliance, the FCA’s follow-up research reveals there is plenty more work that can be done.
Across culture, governance and monitoring; products and services; price and value, consumers – be they typical or vulnerable – can be handed unprecedented levels of support and outcome quality, providing wise resource investments are made.
Yet following these supplementary recommendations – while primarily aimed at consumers – does not benefit consumers alone. With greater consumer support and care comes greater confidence in financial markets, improved competition, and higher standards across
the entire value chain. Indeed, going beyond the basic mandate of Consumer Duty promises to benefit all.