Top of every FCA regulated firm’s agenda at the moment is the Consumer Duty. Preparations should be well under way with an impending deadline for firms within distribution chains to have completed reviews for open book products and services by 30 April 2023 and to have shared the information with distributors.
Most firms will now be aware of the changes coming into place with the Consumer Duty which includes a new ‘Principle for Businesses’, Principle 12 which states;
“A firm must act to deliver good outcomes for retail customers.”
This is accompanied by the ‘Cross-Cutting Rules’ which are;
- Firms must act in good faith towards retail customers
- Firms must avoid foreseeable harm to retail customers
- Firms must enable and support retail customers to pursue their financial objectives
These two key elements are supported by what’s been called the ‘Four Outcomes’. These Four Outcomes consist of rules and guidance setting more detailed expectations for firm conduct in four particular areas and include;
- Products and Services
- Price and value
- Consumer Understanding
- Consumer Support
Let’s look at these in more detail;
Products and Services
Under this outcome, firms must ensure that the products and services they offer are suitable and are regularly assessed to ensure that they continue to be suitable for its customers. This means that firms must ensure that their products and services are fit for purpose.
Products and services must have terms and features that match the needs of the consumers they’re created for and firms must ensure that they have recorded their product development analysis and record when they monitor that they are meeting this outcome. Firms can do this by undertaking regular checks such as;
- File Reviews
- Customer Feedback surveys
- Consumer Research
- Product Performance
- Complaints reviews
- Sales Performance Information reviews
- Price and value
Firms must ensure that their products and services offer fair value. This means that firms must offer products or services at a fair price which reflects the benefits of those products and services and protect consumers from unreasonably high fees and charges.
Firms can assess whether their products and services offer fair value by taking steps to undertake monitoring such as;
- Review of profitability and cost data
- Review of associated fees and charges
- Review of complaints
- Monitoring surveys and social media ratings
- Review of distribution chain and market data
- Monitoring sales performance information
- Reviewing customer usage data
- Monitoring surveys and net promoter scores
- Consumer understanding
Ensuring that your customers are provided with the right information at the right time is vital to ensuring that they are equipped to make effective and informed decisions. Firms must also ensure that information which is being provided to consumers is in a way that is easy to understand for their individual needs. Firms must ensure that communication with consumers is clear and transparent, is appropriate for the average customer and that firms consider potential customer vulnerabilities. There are some key ways in which firms can ensure that they are achieving this outcome, these could include;
- Undertaking surveys and mystery shopping
- Undertaking independent reviews
- Monitoring customer feedback
- Reviewing customer queries data
- Undertaking complaint reviews and root cause analysis
- Reviewing product MI such as product take-up and cancellation rates
Consumer support
Under the Consumer Duty, firms must provide responsible and accessible consumer support. This includes processes which allows consumers to easily switch products and providers, cancel or make complaints. Firms should take a flexible approach taking customer needs into account, remove any post-sale barriers and is responsive and accessible. Firms should ensure that they evidence the steps they take to ensure they meet this outcome. This may include monitoring such as;
- Reviewing of internal quality assurance
- Reviewing customer retention data
- Monitoring the speed of responses to customers
- Undertaking call listening and feedback to employees
- Monitoring of product cancellation rates
- Undertaking complaint reviews and ensuring that the root cause analysis is identified and remedied.
- Undertaking surveys and mystery shopping
Products Governance
One instrumental way for firms to prepare for the Consumer Duty is to ensure that they have a good product governance process. Products should be designed to meet consumer needs, perform as they should, have appropriate distribution strategies in place and are regularly reviewed. Firms with good product governance might undertake steps such as;
- Setting out a firm policy and framework.
- Ensuring meetings are regular and include the right content.
- Documenting decisions and demonstrating adequate review of feedback and monitoring the results.
- Make changes where evidence may suggest a product is failing to deliver a good customer outcome.
- Ensure adequate testing of new products for potential consumer outcome risks.
It is important not to look at the Consumer Duty on its own. Firms must look at the bigger picture to identify the way in which the FCA will expect firms to comply with the shift created by the Consumer Duty and how the FCA will use these new rules to regulate the UK financial services industries. The Four Outcomes are clear in how the FCA expect the Consumer Duty to influence how firms are run and how consumers can expect firms offering financial products and services to engage with them.
