The Consumer Duty regime seems to be the hot topic on the financial services industry’s lips. A quick Google search delivers 51,400 news results and nearly every conference, webinar or forum has a session on readiness for this new regulation. However, what is it, really? And why should you care?
First things first, the Consumer Duty regime is a significant piece of regulation, coming into effect on 31st July this year. It sets high expectations and clear standards of consumer protection across financial services and means that consumers should receive communications they can understand; products and services that meet their needs and offer fair value; and that they get the customer support they need, when they need it.
Surely, I hear you cry, putting the customer first, ensuring they are being sold appropriate products and have access to full support is already at the heart of the industry? Well, in theory, yes of course. In fact some of you will recall the FCA’s “Principles” – notably Principle 6 (a firm must pay due regard to the interests of its customers and treat them fairly) and 7 (a firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading). The Consumer Duty imposes higher standards for both these principles and underlines the fact that firms should focus on the impact of their actions on consumers, and not simply on processes.
So far so good, but what does this mean in practice? And how is the industry responding to the ever-closer Summer deadline?
Firstly, firms need to know exactly who their end customer is. It’s no good to know that a firm has products aimed at “the retail investor” – businesses must consider the appropriateness of their products vis a vis this “investor” so more detail on their financial understanding and wider situation is critical.
Secondly, businesses need to clarify responsibilities both internally and across the wider distribution chain. We all know there can be several intermediaries between, for example, an asset manager and the man on the street – those intermediaries need to know what their role is, what details they need to have and how they can feed their intel across the rest of the distribution channel.
Thirdly, policies and customer communications will have to be reconsidered and likely amended to ensure they fit in with the new requirements and are easily understood.
And finally, firms will need to implement a framework to ensure they know what “good” looks like, can monitor outcomes and identify any risk areas in line with their longer term objectives.
It is a very tall order and, from conversations we’ve been having across the industry, no-one seems to be quite there, yet. Some argue that this regime calls for a much needed shake up of the wider industry and a huge shift in mindset, engagement and protocols; others claim that the combination of Consumer Duty regulation and the additional burden of the SDR is simply too much for any player in the market; yet more, worryingly, are aware of the challenge yet still unsure how they’re going to meet it without considerable external support (and expense). Whatever your stance, what is clear is that the regulator isn’t going to rest on its laurels – it wants to see better consumer outcomes and a fairer financial services industry – and those who fail to comply will be held to account.
With that said, it’s essential to bear in mind what the goal is of this new regulation – an industry which works for the customer, not the other way around. Amongst all the discussion of the difficulties, risks and extra admin, we need to remember that if implemented correctly, this regime will ultimately deliver better results for the consumer and, we hope, build back trust in the financial services industry. Those who successfully demonstrate they are fully embracing this Consumer Duty (or in fact going further) will be in a tremendously strong position to showcase their efforts and set the bar for what “good” looks like.
I don’t deny that this new regulation will be a challenge, but the benefits of doing it properly and using this as an opportunity to really examine functions, communications and end outcomes – for a common goal – surely mean it’s a challenge worth taking on.
At WA we’re here to help firms use this new regulation as an opportunity to raise their profile and offering in the market; to share their experiences of making sure they comply (the good, the bad and the ugly); and to leverage the new rules to show that yes, the end customer really is at the heart of their operations. Drop us a line if you want to find out more.