The implementation deadline for the Consumer Duty is 30 April 2023, meaning that firms have their work cut out for them. Firms across the financial services industry must make substantial changes to ensure they deliver good outcomes for retail customers. Among other things, they need to document how the prices of products and services provide fair value.
In the past years, attention has been paid to the quality of consumer communications. Even if firms send clear and concise information by SMS, email, or push notifications, they’re not willing to reduce complex legal concepts to a few bullet points. Simply put, customers keep on receiving lengthy contracts and notices that feature “legal jargon”, incomprehensive definitions, and unnecessary information.
Firms that have already received actionable feedback from the FCA will undoubtedly need more time to adjust their plans prior to doing what’s necessary. Since there’s no template for an implementation plan or a prescriptive list of obligations for organizations, it doesn’t come as a surprise to learn that numerous firms are struggling.
What Is the Consumer Duty and Why Does It Matter?
The Consumer Duty, proposed by the FCA, represents an important change in the UK financial services regulatory landscape, enlarging on the existing framework of principles-based regulation to express the outcomes to be achieved by regulated businesses.
The final non-handbook guidance for firms on Consumer Duty was published on 27 July 2023, and the primary rules will come into effect on 31 July 2023. The Consumer Duty comprises three parts, namely:
- The Consumer Principle
- The Four Outcomes
- The Cross-Cutting Rules
The FCA has introduced a new principle for businesses, Principle 12, that is, which reflects the high standard of behavior required by the conduct regulator. Not only must firms act in good faith towards retail customers, but they must also avoid foreseeable harm and support retail customers in the pursuit of their financial objectives. The four outcomes of Consumer Duty are products and services, price and value, consumer understanding, and consumer support.
The FCA rules affect all firms that distribute or manufacture products and/or services to consumers, so it’s crucial for them to create more positive and beneficial experiences for customers, which can be achieved by prioritizing customer value.
Firms Must Prioritise the Areas with The Biggest Impact on Outcomes for Consumers
Over the remaining months of the implementation period, the FCA wants firms to give emphasis to effective prioritisation, satisfying the substantive requirements, and, last but not least, working with other firms. To comply with the Consumer Duty, it’ll be necessary to prepare ahead of time and ensure your organisation is set up for success. Concentrate on the following strategic challenges
1. Finalise Your GAP Analysis
Completing the GAP analysis should be your main priority, as it enables you to understand what needs to change. Undertake a review of your current systems and determine where there might be gaps between how you ought to be treating customers and what’s really happening. The GAP analysis will summarise the key points and offer a handy checklist of questions to take into account when benchmarking your progress. Once it’s complete, you can better focus your resources and energy on those problematic areas in your firm. More exactly, you can minimise wasted effort and avoid duplication or rework.
2. Get A Snapshot of Customer Journeys
Examining customer journeys is useful in terms of identifying critical service moments and touchpoints that bear weight as far as customer experience is concerned. Given that financial services products have a long lifespan, customer journeys can last a great many years. Pinpoint all interactions and determine whether good outcomes can be compromised. Find and fix the main source of the problem, not just its symptoms. There’s no better time than now to start mapping customer journeys (adequately document the work to have evidence of a robust approach).
3. Test Your Communications
According to Consumer Duty, consumers must receive communications they understand. What you need to do is to measure true consumer understanding using quantitative testing and qualitative analysis and, above all, establish a clear direction on the changes that can be made. T
o achieve this result, Consumer Duty research plays an essential role, as it allows you to move forward. A significant amount of research is carried out via focus groups and in-depth interviews, both of which are excellent tools. Perhaps you’re seeking an off-the-shelf solution for communications testing at scale. In that case, reach out to a market research agency.
4. Establish A Leadership, Governance Model
For many years, the FCA has invoked the need for a cultural change within firms. For the implementation of the Consumer Duty to be successful, it must be considered as a whole, so leaders must align culture with strategy. Ensure good engagement with the corporate board and senior management functions.
Nevertheless, governance demands that you should consider all the actors, beyond the core executives, in the process of driving Consumer Duty implementation. Appoint a Consumer Duty champion without delay – it can be any individual sitting on the firm’s board; they just need to devote time and resources to ensure compliance with the deadlines set by the FCA.
5. Review Your Management Information & Data
Finally, yet importantly, review your management information system to support decision-making. It’s of the essence to comprehend the source of the data and its accuracy (see what you can do to make the desired improvements). Inaccurate data means making a fatal mistake in terms of business expansion.
Not all consumers are willing to reveal their vulnerability to financial providers, which is why you should monitor the data you hold to detect erratic spending behaviour, declines in income, or a surge of credit searches. Take a data-led approach to test outcomes throughout the consumer journey.
As time is ticking for the Consumer Duty deadline, make sure you’re taking the right steps. Gauge how you support retail customers via their financial journeys, establish clear and timely communications, and work closely with your commercial partners to guarantee you’re delivering good outcomes.