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Key takeaways from the FCA’s Consumer Duty: 1 Year on update
The Consumer Duty sets a higher standard of consumer protection in financial services.
Sheldon Mills, Executive Director, Consumers and Competition, at the FCA, was joined by his colleagues Graeme Reynolds, Director of Competition; Therese Chambers, Joint Executive Director or Enforcement and Market Oversight; and Dominic Cashman, Director of Authorisations. Along with Abby Thomas, Chief Executive and Chief Ombudsman at the Financial Ombudsman Service, they discussed:
- The impact the Duty has had in its first year
- Examples of good practice and areas of improvement
- Priorities for the year ahead
Let’s look at each in turn as we breakdown the key takeaways.
The impact the Duty has had in its first year
One year on and this outcomes-based approach has fundamentally transformed how businesses interact with their customers – driving cultural change and competition across the financial services market.
The FCA point to some important results/successes:
- Sharing of best practice
- Reduced commissions in GAP products driving savings for customers
- New product lines introduced
- No more "double dipping"
- Implementation of customer experience driven KPIs
- Communications with customers are clearer and easier to understand
It does acknowledge however that the Duty has increased complexity, especially for smaller firms. With challenges including the completion of fair value assessments, outcomes monitoring, and articulating fair outcomes. The FCA conceded that there does need to be a focus on simplifying the rules and reducing complexity.
Debate also continues about the challenges when it comes to balancing consumer protection and innovation. Whilst the FCA maintains that the two go hand-in-hand, and it has taken proactive steps such as the launch of an AI Sandbox, the panel did recognise that concerns persist in terms of the risk of consumer harm from the innovation process, and that there needs to be a better balance and greater investment.
Examples of good practice and areas for improvement
The discussion then turned to best practice from across the financial services landscape. Approaches the FCA suggests must be widely adopted moving forward.
Firms that are excelling according to the FCA do the following five things well:
- Align culture with customer experience
- Take a holistic approach considering the entire impact on the customer not just individual outcomes
- Adopt a customer lens by gathering insights that help them really understand needs
- Implement a data-driven approach both in terms of customer understanding and building credible evidence for the completion of fair value assessments
- Maintain a culture of continuous improvement, learning, and outcomes-based monitoring
Priorities for the year ahead
What comes next is a post implementation review to enable the FCA to see what has gone well and what hasn’t, including thematic work on specific sectors and product lines, gathering feedback on impact and complexity, and robustly checking that firms are delivering fair value.
What does success look like according to the panel?
- More innovation that delivers good outcomes
- A change in public dialog
- Firms saying yes to more applications
- Firms demonstrating that they are deeply looking at the requirements of the duty
There is no doubt that one year on the Consumer Duty regulations have been transformative for the financial services sector –increasing focus on protection and fostering a more customer-centric approach. However, challenges persist, and they are placing a significant burden on firms.
Strategic use of AI and data analytics is playing a key role in the delivery of Consumer Duty best practice - enhancing compliance efforts, driving revenue growth and improving customer experiences, whilst helping firms overcome the challenges, and deal with the compliance issues efficiently and effectively.
Take a read of our new whitepaper ‘Regulatory Compliance & Consumer Duty: Strategies for Financial Firms’ to learn more about:
- The evolving landscape one year on
- The impact on firms
- Challenges and criticisms
- Future outlook
- Real-life examples of data-driven best practice
Download your free copy here
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