In light of the Financial Conduct Authority’s Consumer Duty regulations, the financial landscape is facing a period of unprecedented change. While the FCA’s Chief Executive’s recent statement that the new Duty is not intended to “trip firms up” is no doubt reassuring for banks and financial services firms, this does not mean they can afford to be passive in the face of these changing regulations.

To avoid the risk of the significant fines levied against businesses falling foul of the FCA’s Consumer Duty, it’s essential banks act quickly to align with its requirements and ensure a seamless transition for their customers.

The FCA’s Consumer Duty marks a significant shift in the industry’s approach towards consumer protection. It places greater emphasis on customer understanding, and the concept of ‘fair value’ in the industry. The changes demanded by Consumer Duty require firms to adapt swiftly by undergoing a thorough review of operations, policies, and customer interactions to ensure alignment with these principles.

Technology as a tool for the future

The FCA has rightly identified the huge part which technology has to play in developing greater understanding of consumer behaviours and needs. Technology is crucial for banks and other financial institutions to remain competitive and meet consumer expectations in this digital age.

Advanced analytics, AI-driven insights, and data mining techniques are all useful tools capable of helping banks gain deeper insight into customer needs and behaviours, creating more personalised and tailored services. Banks are already using AI chatbots and other new technologies to help boost their customer service offerings, with varying levels of success.

Another technology that proves valuable is advanced analytics, as it can identify patterns, trends, and behaviours, providing insight into the level of consumer understanding, as well as their preferences.

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A shortcut to understanding your customers

These newer technologies, as they develop, will no doubt become more embedded in all parts of the consumer service process, so now is the time to decide the most strategic way of using them.

This is where user experience (UX) and customer experience (CX) designers add value to the process, alongside other departments like marketing, digital, and so on. They design the interaction between customers and financial products and/or services, ensuring that the process is well-thought out and pleasant. Finding a place for new technologies, and finding out how best to implement them, is a key part of UX design and to be done well requires that any changes are rigorously tested before they are rolled out to the general public. Designers will be able to shape the use of these new technologies to make sure they are being appropriately implemented.

However, it’s important to remember that technology only provides a certain level of help in complying with Consumer Duty. While it is invaluable, human insights are equally valuable in uncovering what it is consumers actually need and expect from banks and financial institutions.

Human insights describe a range of data collected through regular feedback processes, customer surveys, and frontline interactions. These provide evidence-based, real-time feedback on where banks excel and where improvements are needed.

These kinds of insights are invaluable for businesses trying to make their customers’ experience more compliant with Consumer Duty. AI might struggle to differentiate between industry jargon, and all its nuances, and everyday language, but humans can quickly determine if they understand what they’re being told. A simple ‘I don’t understand,” from a real human respondent is therefore more valuable than an incorrect answer from an AI, although the latter may appear to be quicker to receive and so more helpful on the surface.

One of the FCA’s aims with Consumer Duty is to ensure “consumers are sold and receive products and services that have been designed to meet their needs, characteristics and objectives” Therefore, to comply with this aspect, banks must make an effort to understand their customers’ needs and show they are attempting to meet those needs. The simplest way to do this is to, quite simply, ask customers what they need. This is where human insights – understanding your customer by listening and observing with empathy – is crucial.

Human insights also serve to untangle issues around hard-to-navigate web pages and hard-to-find information. Testing user interactions on key webpages or apps is a simple, efficient way of finding and fixing problems before they have a chance to impact brand

reputation. Human insights data can also form the basis for further testing and refining of services and products to meet changing consumer expectations in the future, thereby future-proofing your business.

Documenting compliance

The FCA’s Consumer Duty comes with penalties for non-compliance, so compliance documentation is crucial for banks and other financial institutions looking to avoid fines. Detailed documentation of policy updates, training programs, and internal audits not only proves compliance, but also acts as a guide for future adjustments. Results from human insights testing can also be useful internally, as a proof of positive customer experiences using new products and services.

Of course, meeting the requirements for compliance and building up a bank of documentation requires a strategic and balanced approach. Creating an easy-to-follow compliance framework for Consumer Duty obligations would be the first step to building up this documentation in a cost-effective way for the business and ensuring a customer-centric approach is followed throughout the process of implementing changes to the business. The framework needs to take into account factors like the institution’s financial products, client demographics, and distribution channels to effectively apply Consumer Duty to their current operations.

Building bridges

In 2023, a study by CoreData found that 54% of finance professionals did not see the FCA’s Consumer Duty as a burden. This left nearly half (46%) of industry professionals feeling that Consumer Duty is a burden on their work, showing a clear need for more education on the purpose of the Duty, and investment in resources and technology to reduce the burden where possible.

The enhanced transparency promised by the FCA’s Consumer Duty should not be seen as a threat to the industry, whether that’s through the short-term hassle of making changes or making the necessary long-term changes to attitudes. Instead, the FCA’s Consumer Duty represents an opportunity to build stronger relationships between banks and their customers.

Transparent, clear communication without jargon or mistrust shows a commitment to customer welfare and satisfaction that will pay dividends in increased customer loyalty and enhanced brand reputation in the future.

Caroline Vize is Director of Solutions Consulting at UserTesting