Consumer Duty, what is it all about?

First formally proposed in May 2021, the Consumer Duty, as published on 27 July 2022, effectively supersedes the previous Treating Customers Fairly (TCF) framework with a more dynamic and proactive approach to regulation – described by the FCA as ‘assertive supervision’.

Setting the bar for consumer care higher than the existing Principle 6 and 7 of the FCA handbook, an overarching Consumer Principle underpins the legislation: ‘A firm must act to deliver good outcomes for retail customers.’

The Duty – as stated by the FCA – will include requirements for firms to:

• an end to unfair charges and fees
• make it as easy to switch or cancel products as it was to take them out in the first place
• provide helpful and accessible customer support, not making people wait so long for an answer that they give up
• provide timely and clear information that people can understand about products and services so consumers can make good financial decisions, rather than burying key information in lengthy terms and conditions that few are inclined to read
• provide products and services that are right for their customers, with carefully identified avatars of customer groups
• focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction and ensure understanding at all levels.

The final component of the Consumer Duty comprises four outcomes that firms must consistently strive to deliver, bringing customers to the forefront of everything financial services firms do.:

1. Consumer Understanding: Understandable, easy-to-follow communications that genuinely help customers make informed decisions.
2. Products and Services: User-friendly products and services that are designed to meet customers’ needs and offer fair value, taking behavioural biases into account.
3. Consumer Support/Service: Offering support to the customer needs when they need it with Customer Service that works for all customers across all mediums and platforms, taking into account vulnerability.
4. Price and Value: Fairly priced products and services that deliver true value to customers.

Consumer Duty Audit Specialists

The FCA states: “Our rules require firms to consider the needs, characteristics and objectives of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the customer journey. As well as acting to deliver good customer outcomes, firms will need to understand and evidence whether those outcomes are being met.” — Financial Conduct Authority.

So what are the new rules?

A new Consumer Principle that requires firms to act to deliver good outcomes for retail customers additional to Prin 6 & 7
Cross-cutting rules provide greater clarity on the FCA’s expectations under the new Principle and help firms interpret the four outcomes.

The Consumer Duty Rules relating to the four outcomes represent critical elements of the firm-consumer relationship, which are instrumental in helping to drive good outcomes for customers.

The FCA’s clarity on their expectations and firms’ focus on customers’ needs is expected to pay the way to more flexibility for firms to compete and innovate in the interests of consumers.

FCA introduces challenging deadlines

By explicitly placing emphasis on accountability and transparency, the introduction of the COnsumer Duty is intended to put the consumers’ best interests at the heart of every decision that is made within all financial services companies and their processes; more fundamentally to improve how firms serve consumers. Beyond TCF and perhaps crucially, the guidance redefines firms’ obligations towards customers to recognise the growing number of risks posed by our increasingly digitised marketplace.

Many firms will need to put in considerable management time and resource to meet the challenging deadlines for creating an implementation plan and delivering it by 9 months later. Therefore firms must really knuckle down and pay heed to the deadlines. Although they have been extended by 3 months from the original ones, they are still tight. Here are the key dates for the financial industry:

• 31 October 2022: Boards (or an equivalent management body) are required to have an implementation plan
• 31 July 2023: new Consumer Duty rules come into force for new and existing products or services open to sales or renewals
• 31 July 2024: rules come to force for closed products and services

Now’s the time for action!

Whether your firm started to plan or were awaiting the final guidance, there’s no more time to wait: implementation starts now.

Your first action has to be a gap analysis on how the Consumer Duty’s aims and conduct requirements will make sense with your own products and services. This ideally should be conducted independently and is bound to raise areas you have in ‘blind spots’ to help you plan better and more effective changes. At the same time, it’s critical to begin preparing for the switch to a more outcomes-focused model of supervision – including assessing how your current outcomes testing and complaints handling processes can be retooled to fit the Cross-Cutting Rules and Four Outcomes.

Further to that, the sheer scope of the new legislation means your entire product lifecycle and customer journey through time, will likely need an independent and thorough review. This means asking some fundamental questions of your business, such as:

• How do you demonstrate that your products are truly designed to meet customers’ needs?
• Can you be sure they offer value for money; are your costs really justified to the level of service provided?
• How do your communications help customers?
• Is the customer journey, now and throughout the life of the product, smooth flowing and easily understood?
• Is your website really user-friendly, or are there multiple channels of communication on offer? Our financial promotion advice may steer you in the right direction.
• Could you be doing more to support consumers to realise their financial goals; do you offer additional services consistently?
• How do you deal with queries, problems and complaints; could it be done more customer centrically?

Don’t leave it to the last minute and make a few changes hoping to beat the new system. The FCA are putting their heart and soul into the Consumer Duty and will be using this as their standard from now on.

Whatever stage of planning you’re currently working on, it’s clear that ensuring a smooth transition will require considerable time, attention and resource from even the most well-prepared team.

LS Consultancy provide you with a 13 point Audit initially and can assist you in a fully independent implementation project after the findings, or just supply help for as much as you need.

Our subject matter experts can provide an impartial, detailed health check of your approach to root out any inefficiencies or blind spots that prevent you from operating a well-oiled machine from day one, whilst ensuring your processes are flexible and robust enough to adapt to future regulatory directives.

What’s more, we are well versed in implementation planning, delivery and oversight, providing you with everything you need to get ahead of the curve with everything ‘Consumer Duty’.

Call us on +44 (0) 20 8087 2377  or email us.

Related: FCA Consumer Duty will lead to a major shift in financial services

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