The FCA Consumer Duty provision took effect on 31 July and sets higher and clearer standards of consumer protection. In summary, it requires financial service firms to put their customers’ needs first.
The Fairbanking Foundation welcomes the new Consumer Duty. However, research it has commissioned questions whether financial services firms really understand and are listening to what consumers want. And says the Fairbanking Foundation, raises question about whether they have the cultural bandwidth to ensure it will make a real difference.
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Its report, entitled ‘Duty calls – but is industry picking up’ was produced with University College London, Warwick Business School and sponsored by FIS. Specifically, it examines how firms are approaching implementation. It looks at what is influencing their behaviour. The survey also examines how far consumer views are being taken into account and what the barriers are to implementation.
Consumer views
Consumers expect firms to act on negative outcomes to put problems caused by a financial product/service right for individual consumers. And take action to prevent it happening to other consumers in future. Consumers also expect clear communication to customers individually and collectively.
Consumers clearly rated some types of action much more highly. They showed a strong preference for actions which are specific, personalised and put the problem right for the individual consumers who have experienced a negative outcome. This preference was held universally amongst consumers, regardless of socio-economic groupings, or where they lived.
The survey strengthened the Fairbanking Foundation view that understanding consumers views and priorities should be an essential feature of firms’ implementation. And consumer insight should be used to drive decision making in response to monitoring that identifies poor outcomes.
Practitioner views
The foundation interviewed practitioners with responsibility for responding to the FCA’s Consumer Duty requirements. It explored the primary influences on their behaviour. And the barriers they faced in implementing the Consumer Duty.
Practitioners’ approaches involved two main aspects, compliance and culture change. It was clear that compliance, as they understood them, was the strongest influence on action being taken. The report concluded that people had been diligently working to understand and meet the expectations ahead of the July deadline.
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By GlobalDataConclusions and recommendations
Firms were all expected to meet the FCA’s 31 July 2023 date to implement the Consumer Duty. The Fairbanking Foundation identified a range of barriers to effective implementation. It noted a lack of research by the firms about consumers’ priorities. This means it is far from clear that ‘higher and clearer standards of consumer protection across financial services’ will be delivered from this. Or that firms are indeed ‘putting their customers’ needs first.’ Without effective implementation the full extent of beneficial impact for consumers the FCA seeks may not be realised.
The report advocates action so that consumer research and greater contact and engagement with consumer advocates form a much stronger part of firms’ approaches to monitoring, action planning and the FCA’s expectations.
Senior leaders of financial services firms should set a clear expectation that consumer insight and research is an essential activity in improving the impact of the Consumer Duty.
The benefits of consumer insight and research
Practitioners in firms will need training on how to get the most from consumer research. Lack of knowledge on how to use and interpret research findings is a barrier. Action is also needed within firms to promote the benefits of consumer insight and research. Implementation would be improved by greater collaboration within firms and across teams. The foundation argues that the FCA should provide a clear expectation to firms that their whole approach to the Consumer Duty should be informed by research with consumers. This includes engagement with consumer advocates.
The FCA expects firms to use data and management information in monitoring. But satisfaction and complaints data is not the same as designing products and services with full insight into customer expectations. To back that up the FCA should provide feedback to firms and promote examples of good practice.
