In February, we reported on the Financial Conduct Authority’s plans for a new Consumer Duty. In July, the regulator set out its final rules and guidance for that Consumer Duty.
Here, we explore what’s changed, and what you will need to do differently as a result.
What is the FCA’s Consumer Duty?
The Consumer Duty is actually a number of rules and measures, rather than a single duty, and forms part of the FCA’s shift towards “outcomes-based” regulation.
Announcing the new Duty, the FCA stated that it aims to ensure consumers “receive communications they can understand” and that it “will lead to a major shift in financial services”.
What has changed under the new Consumer Duty?
The regulator is introducing new rules, comprising:
- A new Consumer Principle, requiring firms to act to “deliver good outcomes for retail customers”
- Rules that relate to the four outcomes the Authority wants to see under the Consumer Duty
- Rules that provide greater clarity on FCA expectations under the new Principle and that help firms interpret the four outcomes (more detail on which below)
What are the four outcomes under the FCA Consumer Duty?
The FCA’s “four outcomes” relate to key elements of the firm-consumer relationship. The regulator believes these are “instrumental in helping to drive good outcomes for customers”.
The outcomes relate to:
- products and services
- price and value
- consumer understanding
- consumer support
To comply with the Duty, firms will need to “consider the needs, characteristics and objectives of their customers…at every stage of the customer journey”. Taking steps to deliver good customer outcomes won’t be enough; firms also need to “understand and evidence whether those outcomes are being met”.
What does the Consumer Duty mean for financial promotions?
Communication and financial promotions are only one aspect of the Consumer Duty. Other requirements relate to charges and fees, the ease with which customers can switch or cancel products, and access to customer support.
In terms of financial promotions and communications, the Duty requires firms to:
“provide timely and clear information that people can understand about products and services so consumers can make good financial decisions, rather than burying key information in lengthy terms and conditions that few have the time to read.”
It also requires that they “focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction” – including in the marketing and communication process.
Who does the Consumer Duty apply to?
The Duty applies to regulated firms, including those in the e-money and payments sector, targeting retail customers.
It applies across the distribution chain; that is, to all firms that are involved in the:
- Sale, or
- Ongoing administration or management
of a product or service to the end retail customer. That includes any firm “preparing and approving communications that are to be issued to retail customers”.
What do you need to do to comply with the FCA’s Consumer Duty?
- Prioritise outcomes as well as innovation. According to the FCA, firms are “not consistently and sufficiently prioritising good consumer outcomes”. Do your products and services deliver the outcomes your retail customers need?
- Focus on getting communications and customer interaction right the first time. The regulator believes that its regulations and supervisory tools have tackled poor practices, but wants to see “all firms getting it right in the first place”.
- Revisit your financial promotions. The Consumer Duty aims to ensure that businesses “consider the needs of their customers… at every stage of the product or service lifecycle”.
Do your marketing and communications prioritise your customers’ needs? The Duty requires that customers are “getting the information they need at the right time and in a way they can understand.”Do they communicate fees clearly and compliantly? The Duty aims to protect consumers from “unreasonably high fees and charges”. This has implications for the ways those fees are communicated.
Are your terms and conditions sufficiently clear? The FCA wants products and services to have “terms and features that match the needs of the consumers they’re for”. Your communication of these terms and features is vital to consumer understanding.
How do you communicate with vulnerable customers? The Consumer Duty calls out the need to consider customers with “characteristics of vulnerability”, in line with existing guidance. Do your financial promotions and customer communications work for this segment of the market?
Review existing financial promotions and the process you use to create them.
- Do they deliver clear and complete information that enables consumers to make informed decisions?
- Do they go through the required compliance approval process, to ensure you meet the requirements above?
- Do they support the Consumer Duty’s required outcomes?
What is the deadline for complying with the Consumer Duty?
The regulator has given firms until 31 July 2023 to implement the new rules for all new and existing products and services that are currently on sale.
For closed book products, the deadline is 12 months later; 31 July 2024. This aims to give firms more time to apply the new standards to older products no longer on sale.
Ensure you comply with the FCA’s Consumer Duty
If you’re responsible for producing financial promotions, for creating financial products or services, or providing customer support to retail financial consumers, you can read the detail of the Consumer Duty on the FCA’s website.
Our Marketing Distribution Platform, Enable, includes workflow tools that will streamline your financial promotions approval processes. This will help you save time and money while reducing your risk by ensuring all content is compliant and approved before it can be used. To find out more, contact our team today.