Consumer Duty - So Far So Good?
“I have bought a tin of soup, so far so good…but where is the tin opener?”
Live since July 2023 Consumer Duty feels a bit like this, it has been launched – everyone has bought the tin but how many have opened the tin and started to use the product to best effect? And how many still have the tin on the shelf waiting for the moment when they will need its contents to survive?
Introduction
This week (week commencing 19th Feb 2024) the FCA issued the third in its series of reviews which builds on their previous reviews of ‘firms’ implementation plans’ and their ‘fair value frameworks’. With this review they:
remind firms of the consumer outcomes required by the Duty;
set out recent good practice;
highlight areas for improvement where firms have more to do.
For the full detail follow the link:
Consumer Duty implementation: good practice and areas for improvement | FCA
Here is our summary of the key findings…
Culture, Governance, and Monitoring
Outcome the FCA want:
We want consumers to have confidence in retail financial services markets, with healthy competition based on high standards and firms focused on delivering good customer outcomes.
Good stuff…
We have seen firms:
Alter their company purpose to signal to staff that their actions and behaviour should focus on customer outcomes.
Ensure responsibility for good customer outcomes is understood and owned across the business – not just by risk and compliance teams but by those involved from product design through to post-sale support.
Develop new data and metrics to better understand their customers. Introduce appropriate governance so that action is taken where problems are identified.
Must do better…
We have seen firms:
Wait to see if we will intervene to address an issue – rather than tackling it themselves. This is likely to cause firms more complexity in the long run, especially if consumer redress becomes due. The Duty requires firms to proactively identify and address issues and risks of harm.
Who need better data and monitoring strategies. Firms should not be complacent and assume that they can just repackage existing data. We want firms to think seriously about what information they need to really understand their customers’ outcomes and issues they may be facing.
Price and Value
Outcome the FCA want:
We want consumers to get products and services which offer fair value.
Fair value is about more than just price. The Duty aims to tackle factors that can result in products or services which are unfair or poor value, such as unsuitable features that can lead to foreseeable harm or frustrate the customer’s use of the product or service, or poor communications and consumer support.
Good stuff…
We have seen firms:
Examine whether the total cost to consumers of their products and services – including fees, charges, and other costs – provides fair value relative to their benefits.
Enhance the benefits of products and services to improve value.
Take steps to monitor or close products where their value proposition risks causing poor customer outcomes.
Must do better…
We have seen firms:
Fail to show that products offer fair value to retail customers. For example, some firms have relied solely on an assessment of similar product offerings in a market. This alone does not prove that the customer is getting a good deal.
Unable to justify what benefits they provide for the remuneration they receive. We expect firms to be able to explain their remuneration practices and how they are proportionate to the work they do.
Charge customers for a service they are not benefiting from. Some firms are providing – and charging for – ongoing services to customers who don’t need them. In the worst examples, some customers are paying for a service, such as an annual review, and not receiving it.
Consumer Understanding
Outcome the FCA want:
We want consumers to understand the information they are given and make timely and informed decisions.
Consumers can only be expected to take responsibility for their financial decisions where firms’ communications enable them to understand their products and services, their features and risks, and the implications of any decisions.
We want firms to support their customers by helping them make informed decisions about financial products and services. We want customers to be given the information they need, at the right time, and presented in a way they can understand.
Good stuff…
We have seen firms:
Work with experts to improve their communications across different channels and increase customers’ understanding of their products and services.
Redesign customer journeys, focusing on how consumers behave in practice and risks of harm, to better support understanding.
Be more proactive with their communications to support better customer outcomes. They made these customers aware of their options and monitored the impact of these communications on customer behaviour.
Must do better…
We have seen firms:
Be unclear with customers about what charges apply, and when. One way to improve customer understanding is to provide worked examples of product and service costs.
That approve financial promotions but make little reference to the Duty in our interactions with them. Firms need to ensure that they are considering the Duty and its requirements when approving financial promotions.
The review also covers:
Consumers in vulnerable circumstances
Products and services
Consumer support
Like the first two papers this is a good read and provides enough detail to allow the reader to benchmark their own progress against the findings of the wider industry.
Insurance Support Solutions Ltd can provide business support and guidance to support the successful answering of the question ‘‘I am ahead of the curve or falling behind?” ensuring:
Raised customer awareness
Customer trust and confidence
Adherence to the 4 outcomes
Staff competence
Ask us about what is involved, and we will work with you to provide a bespoke solution that gives you the confidence and conviction that Consumer duty is live and making a positive impact within your business and on your customer relations.
And Finally…
Angry Customer: I ordered a pizza and it came with no toppings on it or anything, it's just bread.
Pizza provider: We’re sorry to hear about this! Can I ask you to turn the box and open it again?
Angry Customer: Oops, I opened the box upside down!!! (customer hangs up!!)
