The Financial Conduct Authority (FCA) introduced Consumer Duty, aiming to improve consumer protection standards across the financial industry. Firms had to comply with these rules by 31 July 2023. One year on, we take a look at its successes and failures.
In 2023, the FCA described Consumer Duty as a ‘cornerstone’ to of three-year plan to improve standards across the UK. The rules aim to ensure that organisations maintain fair value and that all customers receive positive outcomes.
On the one-year anniversary of the Duty on Wednesday, Sheldon Mills, executive director of consumers and competition at the Financial Conduct Authority, delivered a speech, revealing some of the positive impacts the FCA had already seen: “In our cash savings work, following our market review, we’ve seen firms act more quickly to increase rates following base rate increases. The base rate rose by 0.25 per cent between July 2023 and February 2024. During this time, firms, on average, increased rates for easy access deposits by 0.45 per cent.
“We estimate consumers will get around an additional £4billion in interest payments per year, money they can save or reinvest, use to pay down any debt, or that might boost spending in the wider economy.”
However, new Moneyhub research, which polled 2,000 UK consumers, found that only 22 per cent have noticed improvements since the regulations came into effect.
When asked about improvements to customer outcomes, 13 per cent said firms have failed to deliver good quality support and after-sales care, with another 12 per cent saying firms have failed to deliver communications that help them to make effective financial decisions. Overall, 10 per cent also felt firms failed to offer suitable products and services that meet their needs.
A ‘mixed response’ to the Duty
Andrew Gething, managing director of MorganAsh, a provider of support services for the financial services sector, said: “In its first year, it’s fair to say Consumer Duty has received a mixed response from the sector – while some have really seized the opportunity to stay closer to clients and deliver far better outcomes, others are still yet to fully demonstrate the change the FCA wants to see.
“Perhaps the best example is in their approach to identifying and monitoring vulnerable customers and ensuring the outcomes they receive are no worse than the resilient. While the FCA suggests that as much as half of all UK adults are vulnerable in some way, many firms are still reporting few or even zero vulnerable customers. It’s clear therefore that many firms still lack the technology and processes critical to gathering the necessary data to meet this requirement.
“One year on, many firms are still yet to fully grasp the opportunities of available technology to turn Consumer Duty from a regulatory requirement into a competitive advantage.
“There will always be those firms hoping to skate under the radar, or believe they are ‘too small’ to worry the regulator under proportionality rules. The FCA confirmed that it is taking a collaborative approach to assist firms in their adoption of Consumer Duty, in recognition of it being a major change. Equally, the regulator confirmed it will enforce the new regulation, especially where it has informed firms they need to make improvements. While much focus has been on meeting Consumer Duty, attention is now turning to how Duty can help firms better understand and meet their customer’s needs, demonstrate good outcomes and gain a competitive advantage.”
‘The FCA is only firing the starting gun’
31 July 2024 also represented the final Consumer Duty deadline for closed products and services, which are no longer on sale to new customers or available for renewal by existing customers.
Andrew Stevens, industry principal, banking and financial services at Quadient, commented: “Banks would be severely mistaken by thinking the final Consumer Duty deadline today represents the ‘final stretch’ of adhering to the compliance rules. The FCA is only firing the starting gun.
“As the Consumer Duty rules now add closed services to the rules and ushers in a new era of banking compliance, the days of hiding behind poor customer service are over. Backed by the threat of severe penalties, the FCA seeks to end the ‘bare minimum’ approach to the communication of financial information.
“Communicating the right financial information, at the best time, through the right channel, may seem like an easy task for banks. Yet research by Quadient and Signal shows 39 per cent of consumers claim a high level of knowledge on financial matters, but only eight per cent could fully grasp the intricacies of updated overdraft charges when tested.
“For banks to build trust with consumers, their communication should be proactive and personalised. By using tools that can leverage internal data to categorise customers into groups, banks can target their messages with more success. For example, if a change in interest rates meant overdraft fees on an account would rise, banks must ensure its message is not only read, but understood by the consumer.
“With the technology now available to help financial institutions rebuild trust in the age of consumer-first banking, there is simply no excuse for unclear communication and shirked responsibility.”
Opportunity for feedback
Helen Slater, regulatory manager at FE fundinfo, said: “The FCA has taken the opportunity to announce a call for input into the complexities experienced by firms when implementing the rules.
“We all know that regulatory creep and duplication are pretty much inevitable when rules are designed to be overarching and cover such a wide range of firms, products and consumers. So, the FCA’s announcement is a welcome one and will give firms the opportunity to raise their concerns with the regulator by 31 October. Duplication makes the rules longer than necessary but shouldn’t make them harder to comply with; it will be more interesting to see if firms are able to identify any areas where adhering to the Consumer Duty may make compliance with other rules harder.
“Additionally, it will be interesting to see what issues materialise around how consumers are treated. Let’s remember that it’s not that long ago that a lot of firms claimed not to have a single vulnerable customer on their books.
“What should be easier for firms to work with is the introduction of closed products to the scope of Consumer Duty, as there are no communications aiming to get consumers to part with their money. The main focus there should be on checking whether the products deliver what they had promised and whether there are any unreasonable barriers to switching out into other products.”
