Welcome to the Consumer Duty Era

Amanda Khatri

Editorial Manager

The Consumer Duty, labelled the “most significant change to financial services regulation in a decade” will fundamentally transform how regulated firms engage with their customers, experts have said.

Firms must now take proactive steps to incorporate the Duty into internal policies, business plans and company culture. The FCA has warned firms that it will be “closely monitoring” how the Duty is being executed and “will take action against those that aren’t following them.”

The Duty, which came into effect on 31 July 2023, applies to all new financial services products, and to all products and services on the market. It aims to make firms act in good faith and support their customers to achieve their financial objectives.

Financial services firms face extra scrutiny if they provide poor customer service and value for money, under the new rules, which were introduced in part to bolster trust in the industry.

A Financial Conduct Authority (FCA) report found that less than half of UK adults surveyed had confidence in the financial services sector and only 36% believe that firms are “honest and transparent.” The cost-of-living crisis, rising interest rates, banking failures and the abundance of enforcement actions against major banks for money laundering and fraud have all contributed to soaring levels of public distrust.

“Firms have done a lot already to implement the duty, but this is a living piece of regulation. Today is just the start. The duty requires firms to implement an ongoing feedback and improvement cycle for all their products and services and to be proactive in addressing issues,” said Jonathan Cavill, partner at Pinsent Masons law firm.

Group Business Compliance Manager at Revolut, Oliver Greaves, told CUBE “the Consumer Duty marks a real change, trumping the previous consumer protection regulation. It is no longer just about treating customers fairly but also requires firms to deliver and evidence good outcomes – including evidence of promptly addressing poor outcomes.”

Under the Duty, banks, insurers, and investment firms should be “open and honest”, avoid harm and support customers to fulfil their financial goals. Overcharging customers or giving advice solely for the benefit of the business will result in sanctions.

How the Duty empowers consumers

The Consumer Duty mandates businesses to provide customers with the following:

  1. Customer support – It should be easy and stress-free to resolve issues, switch or cancel a product.
  2. Transparent information – Consumers must understand what they are purchasing in order to make good financial decisions.
  3. Products and services that are right for the customer – Firms cannot rip customers off and should not pay unexpected costs.
  4. Vulnerable customers should be considered when executing the above.

If a customer is unhappy with the services provided by a particular firm and it has not met the Duty’s standards, they can contact the Financial Ombudsman Service.

A recap on what is expected from financial services

Financial services firms can consider the Duty’s requirements when assessing customer complaints, they receive. The Financial Ombudsman Service can also come knocking at the door, should customers complain directly to them.

 “We expect the FCA to be actively looking at how firms have implemented and to be looking to take action where they are not satisfied with implementation efforts,” Cavill added. “From this point onwards, firms will also need to consider the duty in customer complaints they receive and the Financial Ombudsman Service will be able to look at the duty in complaints for conduct after today’s date.”

The Duty “requires firms to implement an ongoing feedback and improvement cycle for all their products and services and to be proactive in addressing issues.”

Ensuring compliance with the Duty

The Consumer Duty should be viewed as an opportunity rather than another regulatory hurdle or a box-ticking exercise. The regulator has warned against long-winded terms and conditions that can confuse. Instead, it is pushing firms to create informative and easy-to-understand content that gives the consumer a clear idea of what they are buying.

Further advice to firms:

  1. Review all current processes and find areas that need to be transformed to align with the Duty’s values.
  2. Implement monitoring and reporting systems
  3. Train your employees
  4. Update how you communicate with consumers

Many businesses worked to achieve compliance with the Duty ahead of the deadline. However, the difficulty has been in embedding the requirements within culture.

Group Business Compliance Manager at Revolut, Oliver Greaves, said “We’ve worked hard at Revolut to embed the Consumer Duty within our culture: introducing a new Duty of Care which champions good outcomes, enhancing processes and building a robust training programme. It is essential that firms act proactively to ensure good consumer outcomes are at the centre of everything they do.”

He went on to discuss how some firms may expect to see cultural change overnight, in practice, this is very rare. It is crucial for culture to start from the top down, trickling down the right messages that prioritise good consumer outcomes.

CUBE comment

Completely giving your firm’s values a makeover to fit in with the Duty is a difficult task. Just remember, there are plenty of firms in the same compliance boat. If in doubt, attending seminars and events on the Consumer Duty can help lessen your woes. CUBE will be hosting a roundtable in early 2024 to check in with firms to see how the implementation is going.

As this is a new regulation, it is inevitable that the FCA will seek feedback and conduct stress tests, promoting financial services to share their insights. The regulation might undergo a second phase or undergo updates to refine its effectiveness.

there is bound to be feedback and stress tests from the FCA, who will likely ask financial services firms to share their experiences. Upon receiving these, the regulation may have a phase two or contain several more updates.

To stay ahead of every single change to the Consumer Duty or other customer protection regulations. It would be wise to adopt regulatory intelligence products to automatically alert your firm to these changes. Giving your firm ample time to implement before further deadlines.

The act of putting your customer first is no longer optional. Firms must act to showcase their efforts in better treatment of consumers. Ensure full compliance to your firm a competitive edge over others.

To ensure your firm complies with consumer protection regulations, speak to CUBE.