The Financial Conduct Authority issued its highly anticipated final consumer duty guidance (PS22/9) on 31 July last year, sparking a range of reactions within the financial services sector - from cynicism that it is an expensive tick-box exercise to businesses overconfident in their readiness for this latest review. However, with an implementation deadline of July 2023 for new and existing products (July 2024 for back-book or closed products), there is no denying that navigating this new terrain will be challenging, given the drastic shift towards client outcomes at stake.
Why are the changes coming into operation?
The FCA has unveiled their Duty to ensure a higher level of consumer protection and fair outcomes. This will mean consumers getting clear communications tailored to them, products that fit their needs and the appropriate support at each stage of the customer journey.
The new rules also give firms more opportunities for innovation while still ensuring everyone is being treated fairly; this increased flexibility strengthens investor confidence in companies' practices while simultaneously benefiting customers through better services and prices.
As part of the FCA's transformation to becoming a more assertive and data-led regulator, the new Duty also aims to help them spot unfairness or poor practice quickly, so it can be addressed before it takes hold.
How is this different from the Treating Customers Fairly programme (TCF)?
This is a significant shift from TCF, with a number of key differences. Whilst TCF and the new duty both prioritise customer interests, the new directive looks to achieve a cultural shift within the industry and lasting changes in behaviour. It puts the onus on businesses to prove that they are doing the right thing with more measurable outcomes. For example, they need to:
define ‘good outcomes’ and how they can be achieved throughout the customer journey.
demonstrate that their customers have a clear understanding of the products/services they are buying.
provide the regulator with evidence of effective consumer outcomes and that they meet the required standard.
This quantifiable approach requires firms to demonstrate an adherence to ethical standards, promoting trust between businesses and customers alike.
What will the programme require companies to do?
The FCA has identified four outcomes that firms need to deliver to ensure fairness and demonstrate that they are putting customer needs first.
Consumer understanding: products should come with timely and clear information that customers can understand so they can make informed financial decisions.
Products and services: firms should be offering customers products that meet their needs, rather than pushing products that aren’t suitable or needed.
Consumer support: the FCA flags long call-waiting times and reduced access to in-person services. Customer service should be appropriate across the customer journey with both digital and non-digital options. It should be as easy to complain, switch and cancel products as it is to buy them.
Price and value: consumers should receive fair value. Firms should satisfy themselves that the prices they charge are reasonable for the benefits.
Protecting vulnerable customers
At the ‘Consumer Protection in Financial Services Summit’ in September 2022, Sheldon Mills, FCA Executive Director, Consumers and Competition stated,
“Families up and down the country are struggling with their finances or thinking about how to best manage them. We want to take the spirit and intent of the Consumer Duty
towards the Cost-of-Living challenge”.
The FCA Consumer Duty puts extra emphasis on looking after vulnerable customers defined as “customers who, due to their personal circumstances, are especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care”.
According to the FCA, there are four key drivers of vulnerability:
Health – including conditions or illnesses that affect a person’s ability to undertake daily tasks. This could include physical and mental health issues.
Life events – such as bereavement, a loss of employment, and relationship breakdown.
Resilience – a customer’s ability to withstand financial or emotional shocks. A lack of resilience could be caused by inconsistent income, high level of debt, or low savings.
Capability – consumer’s level of financial knowledge and confidence in managing money.
Given the cost-of-living crisis and the moral impact of treating vulnerable customers poorly, it is essential that this group of people are given extra consideration. The new Consumer Duty guidance addresses this, ensuring that they are treated fairly.
By taking the time to understand what the new Consumer Duty means for your business, you can ensure that you are providing customers with a fair service – and this will help build trust and loyalty over time. In turn, this could mean increased sales as customers will trust your brand and feel more comfortable with your services.
Ultimately, making sure you comply with the programme is essential for any financial services business today.
How can TTMC help?
As an FCA authorised and regulated business and a Market Research Society Company Partner, TTMC is well placed to help financial services organisations meet their compliance obligations.
We have carried out FCA regulated TCF compliance calls on behalf of global insurers and major retailers. We deliver sensitive, personalised customer service, enhancing the customer experience with the value of the human touch. Our ‘Voice of the Customer’ surveys capture reliable and actionable insight, helping ensure that you are delivering the right customer outcomes.
Get in touch if you would like to understand how we can help meet your compliance needs.
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