The FCA’s Proposed Consumer Duty: What Is It and What Does It Mean for the UK Financial Services Industry?

May 2021 saw the publication of plans for a new Consumer Duty from the UK’s Financial Conduct Authority (FCA). Following hot-on-the-heels of the FCA’s guidance on the fair treatment of vulnerable customers, this new duty sets out to improve standards in the financial services sector, fulfilling the FCA’s responsibility to ensure consumers are properly protected.

While welcomed by some in the industry, others are not quite so sure, asking how this proposed package of measures will differ from existing statutory duties of care. While this still needs to be clarified, at the heart of the proposed plans lies the overarching message that financial services firms have a duty to ensure customers make the most of their money, with organizations taking responsibility to develop accessible products and services which underpin sound financial decisions, delivering strong financial outcomes every time.

What is the Proposed Consumer Duty?

The FCA is proposing that firms ask themselves what outcomes consumers should expect from their products and services and how firms can act to enable not hinder these outcomes, moving on to then assessing the effectiveness of any actions they take or changes they make. The FCA has outlined three key elements of the Duty:

1. Consumer Principle

This reflects the overall standards of behavior the FCA expects.

2. Cross-Cutting Rules

These develop and clarify the Consumer Principle’s expectations of conduct, and set out how it should apply in practice:

• Taking all reasonable steps to avoid foreseeable harm to customers

• Taking all reasonable steps to enable customers to pursue their financial objectives

• To act in good faith

3. Four Outcomes

A set of rules and guidance that set more detailed expectations for four specific outcomes.

These four outcomes form the crux of the duty, representing the key elements of the firm/customer relationship and determining how financial services organizations design, sell and service their products and services, encompassing the key interaction points along the customer journey. The four outcomes are:

1. Communications – equipping consumers to make effective, timely, and properly informed decisions about financial products and services. In short, ensuring customers have the right information, in the right format, at the right time.

2. Products and services – ensuring products and services are designed to meet the needs of consumers and then sold to those whose needs they meet.

3. Customer service – making sure the customer service provided meets the needs of consumers, allowing them to realize the full benefits of the products and services.

4. Price and value – making certain that the price and value of the products and services on offer represent fair value for customers.

What Does This Mean for UK Financial Services?

While these proposals are currently undergoing the initial consultation, the FCA plans to make any new rules by 31st July 2022, which is actually quite soon. Obviously, financial services firms can’t make any definitive changes to their processes until the Duty is finalized and the FCA recognizes that many financial services firms already provide good products and services at fair prices, supported by high standards of customer service and communications. But there is always room for improvement and financial services organizations could very well take this opportunity to reflect on and reassess their customer offering.

For many firms, the duty could mean a shift in culture and behavior, moving to a consistent focus on customer outcomes, putting customers in a position where they can act and make decisions in their own interest. But, if you don’t know where you’re starting from, how can you begin to assess where you need to go?

As the FCA’s consultation is underway, financial services firms can hit the ground running, making a concerted effort to better understand their customer base to highlight what they’re doing right and what they can improve on. Customer feedback and evaluation are key here, using the resulting information to underpin service and product development, building a customer-centric culture of continual improvements to ensure customers are protected from the outset, rather than waiting for regulation to play catch-up with firms that don’t always act in the best interests of their customers.

Aptean Respond delivers comprehensive, contextual customer feedback and insight, giving financial services organizations the information they need to fulfill their duty of care responsibilities.

As regulations set to increase, this information will prove vital, providing the insight and oversight needed to ensure consumers are properly protected at every step of the way. If you’re a financial services organization looking for support in preparing for the new Consumer Duty, please get in touch with our team of industry experts today.