The News:
The Consumer Duty, a new regulatory framework that sets out higher and clearer standards of consumer protection across the financial services industry in the United Kingdom, is set to go into effect on July 31, according to the Financial Conduct Authority (FCA), the independent financial services conduct regulator. The framework is designed to require financial services firms to put their customers’ needs first, act in good faith, and support them in their pursuit of their financial objectives.
The Duty will include requirements for firms to:
- End rip-off charges and fees
- Make it as easy to switch or cancel products
- Provide helpful and accessible customer support
- Provide timely and clear information that people can understand about products and services so consumers can make good financial decisions
- Provide products and services that are appropriate 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.
The Consumer Duty framework is a significant change for the financial services industry, and the regulation will apply to new products and existing products and services that are open for sale or renewal on July 31, 2023. For closed products or services that are no longer on sale, the Duty will apply from July 31, 2024.
You can read the finalized guidance for the Consumer Duty here.
FCA’s Consumer Duty Standard: Rules and Standards to Drive Better Customer Experiences
Analyst Take:
A new regulatory framework being implemented by the UK’s financial services regulator is set to go into effect at the end of July, and is designed to create a more transparent and consumer-focused approach to offering financial products and services. The Consumer Duty regulatory framework implements new rules and standards that stipulate that consumers should receive communications they can understand, should only be offered products and services that meet their needs and offer fair value, and ensure they receive the customer support when and how they need it.
Creating a Framework for Consumer Protection
The FCA’s impetus for creating the Consumer Duty framework is based on the idea that consumers, regardless of the level of financial education or sophistication, should be protected against if not outright predatory sales practices, legacy business practices that required a certain level of financial knowledge to fully understand the product, and its appropriateness for the customer’s individual financial situation.
Further, the framework allows the regulator to set a new bar that all firms must meet, and establishes a framework for interventions or investigations, along with possible disciplinary sanctions. The Consumer Duty framework is designed to be outcomes-based, which hopefully will allow a give-and-take between regulators and financial services firms that will likely require an adjustment period as they work through the rules and standards.
A Massive Regulatory Burden, or an Opportunity to Drive Better CX?
Whenever new regulations are introduced, the immediate reaction from industry is often focused on the burden placed on firms to comply with the new regulations. The UK financial services industry will have had 12 months to implement new policies to comply with Customer Duty when it goes into effect for new and existing products, and an additional year for products that are no longer for sale.
However, the bulk of these rules and standards are designed to improve the overall experience for financial services customers, and they align with the service principles that are used with many other types of products and services. If the core Consumer Duty principles listed above are applied to, say, the restaurant industry, few would blink an eye.
Take another look at the key Consumer Duty principles above, and it is evident that each of them is designed to simply provide a better, more transparent customer experience.
A Model for the US Financial Services Industry
The US financial services industry, like many around the world, is naturally resistant to the idea of additional financial regulations. Compliance costs can be significant, and may involve a significant lift, in terms of implementing new systems, documentation, and training programs.
However, a proactive approach that incorporates the principles of the Consumer Duty regulations may accomplish two goals. First, the application and implementation of these principles will generate goodwill among both customers and prospects, many of which have been accustomed to the traditional financial services product-marketing and sales approach, which leaves many customers intimidated, confused, and frustrated, which can lead them to switching providers. Each of the principles of the Consumer Duty are focused on making the customer’s experience better, which should set up financial services firms for better long-term relationships with customers.
Second, if financial services firms adopt even some of these principles, it will demonstrate to regulation-hungry legislators that the industry itself is truly vested in serving customers and providing an excellent, fair, and transparent experience. Although this may not stave off all regulation, it will illustrate that the industry is taking steps to put customers first, rather than simply focusing on profits.
Author Information
Keith Kirkpatrick is Research Director, Enterprise Software & Digital Workflows for The Futurum Group. Keith has over 25 years of experience in research, marketing, and consulting-based fields.
He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.
In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.
He is a member of the Association of Independent Information Professionals (AIIP).
Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.
