In July 2022 the FCA announced the next step in its consumer regulation framework, Consumer Duty. This is defined as:
“Our new Duty sets higher and clearer standards of consumer protection across financial services, and requires firms to put their customers’ needs first.”
What is Consumer Duty?
Consumer Duty comprises a Principle, a setting of support (Cross Cutting Rules), 4 Outcomes, an Implementation Timeline and FCA expectations supported by recommendations/guidance.
The Consumer Principle, Principle 12, requires firms to ‘act to deliver good outcomes for retail customers’.
This is supported by Cross Cutting Rules require firms to:
- act in good faith towards retail customers
- avoid causing foreseeable harm to retail customers
- enable and support retail customers to pursue their financial objectives
And must deliver against the four outcomes which are a suite of rules and guidance setting more detailed expectations for firm conduct in four areas that represent key elements of the firm-consumer relationship:
- The governance of products and services
- Price and value
- Consumer understanding, and
- Consumer support
FCA Expectations of Firms:
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Put consumers at the heart of their business and focus on delivering good outcomes for customers.
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Provide products and services that are designed to meet customers’ needs, that they know provide fair value, that help customers achieve their financial objectives and which do not cause them harm. (Harm is described as not offering value for money)
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Not seek to exploit customers’ behavioural biases, lack of knowledge or characteristics of vulnerability.
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Ensure that the interests of their customers are central to their culture and purpose and embedded throughout the organisation
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Monitor and regularly review the outcomes that their customers are experiencing in practice and take action to address any risks to good customer outcomes
Good Outcomes:
- Fair value: consumers receive fair prices and quality
- Suitability and treatment: consumers receive suitable products and services and receive good treatment
- Confidence: consumers have strong confidence and levels of participation in markets
- Access: diverse consumer needs are met
What is it trying to achieve?
- Creating FS firms that have a culture of openness that supports customers.
- This Culture needs to be embedded in the organisation.
- Regulated firms needs to have a strategy that supports this principle.
- It needs to be communicated to all employees who activities impact consumers.
How Can Analytics Help?
- Build an infrastructure where every interaction is assessed automatically to align to the principle.
- Create Dashboards that are the basis for monthly annual reporting.
- Create Coaching forms that explicitly question if every reviewed interaction delivered a good outcome for the customer.