The responsibility of FS to deliver good outcomes for their consumers
Traditionally, firms have focused on preventing poor outcomes for their consumer, rather than enabling positive ones. This mentality, compounded by a siloed approach to compliance – one which didn’t effectively integrate the individual or the consumer into the processes – has historically resulted in serious consequences.
The Consumer Duty is a culmination of lessons learned from these past mistakes and a renewed campaign for financial services to take their duty to protect their customers seriously. It is grounded in good outcomes to improve financial market functions and promote decisions that are positive for consumers.
The FCA’s intentions with the Consumer Duty
“Our regulation affects consumers, businesses and the UK economy. We have a strategic objective to ensure financial services markets function well. We have operational objectives to protect consumers, maintain market integrity and promote competition in the interests of consumers.”
The Consumer Duty forces firms to put their customers’ needs first. To understand the drivers, it’s important to step back and remember it represents one – albeit fundamental – part of a wider campaign.
The FCA has released a Corporate Strategy for 2022-2025 in which it promises to be more innovative, assertive and focused on results, rather than processes. In part, this is also shaped by a growing awareness of consumer risks and challenges, like the increased cost of living.
These global consumer threats and the overwhelming changes to how financial services function through digital transformation, have prompted the FCA to come down harder on the controls in place to protect or prevent harm to consumers.
This 3-year strategy sets out to achieve three primary goals:
- Reduce and prevent serious harm
- Set and test higher standards
- Promote competition and positive change
To put this into context, the FCA has outlined what they expect from financial services firms when implementing this strategy:
Fair value: Consumers receive fair prices and quality
Suitability and treatment: Consumers are sold suitable products and services and receive good treatment
Confidence: Consumers have strong confidence and levels of participation in markets, through (1) minimised harm when firms fail and (2) minimised financial crime
Access: Diverse consumer needs are met through (1) high operational resilience and (2) low exclusion
What does ‘good outcomes’ mean?
Overall, the FCA quote many ways it hopes to achieve its goals, from internal technology investment, to increased and revised consumer-led legislation. But the overarching theme is “positive metrics that we are accountable for.”
Within the Consumer Duty, this has been defined as the need to deliver ‘good outcomes’. It sets out to ensure not just good conduct, but that the regulated firms and individuals who fall under this regulatory banner are both accountable and empowered to support the consumer.
This terminology was not chosen lightly. The FCA aimed to be both transparent and inclusive. There was lots of criticism for the previous Treating Customers Fairly rules. So in the development of the Consumer Duty, as its replacement, the FCA has considered the wording carefully…
‘Good outcomes’ is designed to give individuals autonomy, while enabling financial services organisations to meet the diverse needs of their consumers, rather than offering generic services. Centred around supporting consumer decisions and transparency, this sits starkly in contrast to the siloed conditions that have led to negative consumer consequences in the past.
It also spans numerous ways organisations must protect their customers: from mitigating scams to revising terms and conditions, and improving diversity and customer satisfaction.
This has been distilled into three cross-cutting rules and four primary outcomes:
Cross‑cutting rules require firms to:
- Act in good faith
- Avoid causing foreseeable harm
- Enable and support retail customers to pursue their financial objectives
The four outcomes relate to:
- Products and services
- Price and value
- Consumer understanding
- Consumer support
How does this change in approach affects individual compliance?
Firms have historically looked at individual compliance through the lens of risk management, but this perspective needs to change. Instead of mitigating against the worst case scenario, firms need to be aiming for the best case scenario.
This will result in a very different mindset, culture and practical implementation of individual compliance policies.
The Consumer Duty is shaping regulations that are very different to those that came before. For example, providing timely and clear information that customers can understand about products and services. Or providing accessible customer services.
In terms of individual compliance, this will mean strengthening the understanding and responsibilities within all teams, but especially consumer facing ones. For example, the roles of Appointed Representatives will likely need to evolve and become more in-depth to reflect the changes to Consumer Duty.
The fact that the FCA’s Corporate Strategy is heavily outcomes-based also indicates that organisations must be ready to capture, measure and evidence data against the regulation. As part of their own corporate strategy, they are investing into technology platform and new capabilities to support their consumer focus.
Financial organisations would be wise to follow suit and find a platform that will support the individual accountability, transparency, and consumer-led requirements that the Consumer Duty is implementing.
In fact, the FCA are reiterating that taking a “more data‑led approach, this should enable us to more quickly identify practices that negatively affect those outcomes and to intervene before practices become widespread.”
Starting sooner
Consumer Duty is already accelerating a large-scale shift. It not only affects how organisations view and take responsibility for consumer outcomes, but it affects corporate and individual compliance requirements, accountability processes, and data systems.
The FCA has recently performed a review in which they found that although many firms have embraced and demonstrated an understanding on this new mindset, others are further behind in their implementation and strategic thinking. This confirms that this is going to be a bigger shift than some people first thought, and some may struggle to effectively implement it across the business.
