The Financial Conduct Authority’s (FCA) Consumer Duty came into force on 31st July 2023 for existing products and services, seeks to ensure customers receive these “good outcomes” and will impact providers of certain probate products, funeral plans, and other estate planning and bereavement services.
The Duty is made up of an overarching principle and new rules firms will have to follow. It means that consumers should receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it.
The FCA say that clarity on their expectations and firms focusing on what their customers need should lead to more flexibility for firms to compete and innovate in the interests of consumers.
The Duty forms part of the FCA’s aim to become a “more assertive and data-led regulator”. With firms assessing how they’re meeting their customers’ needs, the FCA will be able to quickly identify practices that don’t deliver the right outcomes for consumers and take action before practices become entrenched as market norms.
Sheldon Mills, Executive Director of Consumers and Competition, said:
“The current economic climate means it’s more important than ever that consumers are able to make good financial decisions. The financial services industry needs to give people the support and information they need and put their customers first.”
The Duty includes requirements for firms to:
- end rip-off charges and fees
- make it as easy to switch or cancel products as it was to take them out in the first place
- provide helpful and accessible customer support, not making people wait so long for an answer that they give up
- provide timely and clear information that people can understand about products and services so consumers can make good financial decisions, rather than burying key information in lengthy terms and conditions that few have the time to read
- provide products and services that are right for their customers
- focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction
Chris Kneen, Managing Director of UK & Ireland at Provenir, said:
“As the nation grapples with a living crisis and rising inflation, the introduction of Consumer Duty comes at a crucial time.
Data shows that consumer lending, excluding student loans, reached over £28 billion in January 2023, surpassing the previous peak in January 2020 before the Covid pandemic. However, financial firms have become more cautious about lending money, tightening credit standards and moving away from speculative deals, making it harder for consumers, and SMEs, to access the financial support they require.
Consumer Duty is a proactive response by the government to the challenges faced by consumers and ensures that financial institutions adopt a consumer-centric approach to credit. For consumers, the new regulatory framework will bring about a range of positive changes. It will enhance affordability, address revolving line of credit issues, and prompt adjustments to product offerings throughout the customer journey.
For financial institutions, it’s a complete mindset shift – they want to be seen as looking after their customers, not as loan predators. Reputational damage can be caused quickly, and the impact of rumours and a bad reputation could easily tank their business.
To effectively implement this customer-centric approach, which envisions adjustments to the product offering at any given time in the customer journey, financial institutions will need to embrace advanced technologies such as artificial intelligence and machine learning. These technologies will enable them to leverage large pools of data and anticipate when customers may be heading towards financial difficulty and step in with preventive measures.”