Companies which already feel that they have been overburdened by regulation in recent years will hardly be putting out more flags for the Consumer Duty most recently introduced by the Financial Conduct Authority (FCA).
As ever with regulation of this nature, the intention is sound and laudable – to further protect the consumer from himself or herself and to further rein in the most predatory aspects of capitalism.
This latest move – scheduled for implementation on July 31 this year and described by the FCA itself as a “paradigm shift” – asks firms not only to deliver a higher standard of care and protection for customers but requires them to “act to deliver good outcomes for retail customers”.
The long-established principle of caveat emptor – ie, that the buyer alone is responsible for checking the quality and suitability of goods or services before a purchase is made – is not sufficient in today’s complex financial markets. This wide-ranging duty therefore has huge ramifications for firms.
The new regulations will require firms to review their product suite, communications and end-to-end customer journey, and to consider changes in areas including governance, accountability, reporting and staff training.
The Consumer Duty, apart from the core principles above, requires three key behaviours from firms – that they should:
- Take all reasonable steps to avoid foreseeable harm to customers;
- Take all reasonable steps to enable customers to pursue their financial objectives;
- Act in good faith.
Again, discounting the fact that most reputable firms already adhere strictly to these principles, the new Duty introduces a suite of expectations for conduct in relation to four specific outcomes – communications, products and services, customer service and price and value.
Diligent records will need to be kept by firms to evidence that they are meeting their Consumer Duty obligations, and it affects every corner of the business. HR departments for example will need to ensure their colleague policies (Disciplinaries for example) reflect the Duty requirements. They will need to record any breaches of the Duty, what action was taken, and be able to report on this if required.
Of some assistance here is high quality case management software, which focuses on activities such as complaint handling and HR case tracking, allowing clients to monitor progress and ensure that they remain fully compliant, even with the most complex issues.
For instance, one of the FCA’s concerns is to take account of the needs of customers with characteristics of vulnerability. This matters, since the Authority’s 2020 Financial Lives Survey showed that 46% of UK adults, or 24 million people, showed one or more such characteristics. Effective software notifications can flag relevant characteristics to the complaint handler.
The FCA also wants firms to use root cause analysis of complaints data to identify any product or service areas that need to be improved and, again, quality software can record outcomes to effectively learn from complaints.
It should be said that the Consumer Duty is outcome, rather than process, focused. The need to demonstrate good outcomes will mean complaints monitoring and learning lessons are particularly important, and seeking the right professional advice should be the first step as the FCA’s deadline approaches.
