Firms cannot be complacently with fewer than 6 months left before Financial Services firms are legally required to fully comply with the Financial Conduct Authority’s (FCA) Consumer Duty regulations.
The FCA Consumer Duty requires the financial services sector to obtain pertinent information on consumer needs, characteristics, and goals in order to demonstrate to the FCA that they are continuously meeting the requirements. Businesses must also make sure that, based on the customer data they have gathered, they are only marketing goods and services to clients with whom they are compatible.
Businesses should have finished all essential reviews of their current goods and services by April 30th, 2023, to ensure that they will be in compliance by July 31st. Beginning on July 31, 2024, closed book products and services will also be subject to this compliance.
What does this mean for Financial Services firms?
The Consumer Duty guidance contains a number of ideas, but its main tenet is that businesses “work to deliver excellent results for retail customers.” By giving clients messages they can comprehend and products that match their needs, financial services companies can concentrate on protecting consumers.
The ability to access current, comprehensive consumer data may be hampered by legacy systems, which will prove to be a challenge for businesses trying to get ready for Consumer Duty compliance. This would directly affect the accuracy of a critical gap analysis, which examines areas such as customer journeys and product lifecycles to determine where organisations fall short of the new standards.
To determine the degree to which customers are driving successful results, value evaluations should be conducted for all product offerings. Here, data and insights should be used to develop a picture of the level of service provided to consumers and any additional advantages they might receive from buying products from the Financial Services company.
Financial Services companies are required by Consumer Duty requirements to make sure that their marketing and sales activities are exclusively directed at people whose needs, traits, and financial goals are compatible. In order to offer suitable products across the entirety of the customer lifetime, businesses must establish a thorough awareness of consumer conditions, risk tolerance, and financial aspirations.
How will the FCA Consumer Duty regulation impact retail banks, building societies and credit lenders?
To determine the extent of Consumer Duty compliance throughout the supply chain, a review of all bank, credit lender, and building society distribution channels should be conducted. In a letter sent to mortgage intermediaries in 2020, the FCA outlines the examinations that these organisations are undergoing in relation to consumer fees and charges and if they are providing acceptable customer service to support these. Thus, once Consumer Duty is put into place, the pressure on distribution channels will only grow stronger.
Additionally, as consumers and companies become more vulnerable as a result of the cost of living problem, banks, building societies, and particularly credit lenders will come under growing strain. This will put even more pressure on these organisations to deliver positive outcomes.
How will insurance organisations be affected by the FCA Consumer Duty regulation?
Although the Insurance Distribution Directive (IDD), which incorporates the Consumer’s Best Interest rule, may have better prepared the Insurance industry than others to deal with the new Consumer Duty rules, it is still essential that procedures, distribution methods, and products are Consumer Duty compliant before July 31st.
In a sector that is already heavily regulated, insurers must make sure that their businesses prioritise consumer protection by working to benefit insurance clients. As a result, only customer-specific insurance policies must be offered, and insurance company communications must be simple enough for the average customer to grasp.
How will capital markets be affected by the FCA Consumer Duty regulation?
Technology’s influence on how people approach investing will continue to grow as a result of the introduction of consumer duty in the capital markets. Giving people more responsibility will help to ensure that they can make informed investment decisions and that businesses act in their best interests. This will help to guarantee that consumers have access to clear information about fees, performance, and risk, as well as an understanding of the products they are investing in.
Capital markets organisations risk diminished investment and reputational damage if they don’t satisfy the growing customer need for openness on the platforms they utilise and the investments they make. Therefore, it is essential that Consumer Duty duties be fulfilled in order to increase consumer confidence in these organisations, which will then lead to an increase in investments.
Important things to think about in preparation for consumer duty:
- Fundamentally, do you know your customers well enough?
- Are you confident with your current view of your customer, allowing you to accurately identify and monitor potential vulnerabilities across your entire customer base, regardless of the product?
- Does your marketing platform allow you to identify and target customers at a granular level, ensuring you are marketing products and services that are compatible with them?
- Do your onboarding and pipeline management processes allow you to gather the relevant data to understand customer needs, characteristics and objectives?
- Are you able to monitor and report on communications sent to customers and how their needs have changed over time?
Download our initial Consumer Duty checklist, here.
Time is of the essence; take immediate action to comply with Consumer Duty regulations.
LS Consultancy provides marketing, onboarding, opportunity pipeline management, process automation, Know Your Client (KYC), and customer solutions for a number of sizable Financial Services companies.
Firms cannot operate complacently with fewer than 3 months until they are required to finish reviews of their current products and services and less than 6 months till Consumer Duty is implemented.
To discuss how to get your business ready for Consumer Duty compliance, get in touch with us right away.
Contact us today on 020 8087 2377 or email us
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