The FCA has given firms a steer on how it expects them to approach their ongoing obligations under the Consumer Duty. An FCA speech given in November last year delivered the strong message that the Consumer Duty was not a 'once and done' exercise. Firms have to ensure they are continuously learning and improving their delivery of the Consumer Duty and must be able to evidence this in their annual board reports.

The ongoing nature of Consumer Duty obligations, and the regulator's expectations of firms, are outlined below.

Continuing Consumer Duty obligations

Firms with open products, which have been subject to the Duty since July last year, should continue to:

  • develop new data and refine management information. This will enable better understanding of customers' interests, measuring and monitoring of consumer outcomes (and to put things right where they have gone, or could go, wrong) and preparing the annual board report.

Data needs to be used to challenge and improve customer outcomes. Firms using existing data, whether in its current or repackaged form, to justify what is already being delivered can expect FCA scrutiny and questioning.

Data itself must be challenged and used properly. In this way, data can be used to get to the root cause of problems and inform any actions that need to be taken.

    Data is a useful tool for understanding customers. It can be used by firms to spot problems before they arise and to address them, helping to get things right first time.

    • re-evaluate their communications. Continual review and tweaking the arrangement and presentation of communications content can enhance clarity and improve customer understanding.

    Communications should be stripped of content that exploits consumer biases; for example emotive aspects of credit product promotions, and work to overcome consumer biases such as inertia.

    Firms should consider how targeted communications might improve customer outcomes by giving the information they need to make informed decisions about their finances – for example a decision to move funds from an easy access account to a higher interest longer term account where that money is not needed instantly.

    • review their charging structures to make sure they continue to provide fair value. Fair value assessments need to take into account the benefits, features, limitations and target market of the product and to build on management information to demonstrate good consumer outcomes. In the consumer investments context, for example, adviser charges and fees must provide real benefit and value to consumers.

    Firms need to assess whether fees are justifiable and reasonable. If services have not been performed, have not provided value, or are not needed, refunds or fee caps may be appropriate. A move to a less expensive product that better meets the consumer's needs may be another option.

    • embed the Duty. The cultural shift must take place across all areas of the business, not just the Consumer Duty project team, and the Duty must be getting sufficient attention at board and ExCo level.

    Pay and bonus structures should be reviewed with a Consumer Duty lens. Firms should examine incentivisation practices and how those are impacting consumer outcomes.

    Appropriate levels of staff training should be in place, and should reflect the complexity of the consumer's needs and the product involved. This investment in training will enable firms to better understand their customers' financial objectives and in turn, ensure they get the right product for them.

    • identify and support vulnerable consumers. There are different types of vulnerability and consumers can move in and out of vulnerability. Specialist staff and increased numbers may be required to provide support and good outcomes for those individuals.

    For consumers facing financial challenges, particularly in a cost-of-living crisis, firms should think carefully about the type of support needed and what communications channels would best be used to provide that support.

    Firm proactivity

    Firms that engage meaningfully with their Consumer Duty obligations are best placed to be proactive in delivering good consumer outcomes. The FCA wants firms to be:

    • proactive in dealing with problems. Firms should lead from the front and not wait to see how the FCA takes action to address an issue. Those that are proactive to remediate an issue can avoid being on the receiving end of the FCA's intervention supervisory tools or, worse, the regulator's enforcement action. Firms that use data properly to understand their customers will be well placed to identify issues and should address them proactively.
    • proactive in continuously improving. Proper data collection and use and outcomes monitoring will enable firms to have a programme of continuous improvement of customer outcomes.

    These obligations and the FCA's expectations were discussed more fully in the regulator's recent webinar.

    Final thoughts

    While firms are continuously learning and improving their customer outcomes for open products and services, those with closed products will be working towards the July 2024 implementation date.

    Firms that went through the first round of Duty implementation last year can run their open book and closed book programmes in tandem, capturing lessons learned from their open book implementation programme.

    Firms going through the implementation process for the first time, however, will not have this experience or compliance muscle memory and could well be finding some of the Duty obligations particularly challenging, particularly for older products and also (but not exclusively) in relation to the price and value outcome.

    In order to support firms in meeting the July 2024 deadline, further engagement from the FCA will be necessary on the challenges of closed book implementation, as well as the approach it proposes to take to the handling of this trickier programme.

    Contributors

    Bruce Stephen

    Head of Banking and Financial Services & Partner

    Lindsay Lee

    Senior Associate