The Financial Conduct Authority (FCA) is yet to decide on the wording of the Consumer Principle which will set the tone for its new consumer duty proposals. Regardless of the final decision on that, if a firm was to look at the consultation paper and ask, what is the FCA’s most important aim here, the answer would most likely be “outcomes, dear firms, outcomes”.
After all, the FCA has for some time labelled itself as an outcomes-focused regulator and some argue that the consumer duty is the final piece of that puzzle. A simple search for the word “outcomes” in the 56-page consultation paper, generates 227 matches. It is undoubtedly a key theme.
So why this, why now? And how exactly can firms improve outcomes for consumers? The FCA has focused on four key elements of the firm-consumer relationship, each accompanied by specific outcomes which the FCA is seeking:
Equip consumers to make effective, timely and properly informed decisions about financial products and services.
2. Products and Services:
These should be specifically designed to meet the needs of consumers, and sold to those whose needs they meet.
3. Customer Service:
To meet the needs of consumers, enabling them to realise the benefits of products and services and act in their interests without undue hinderance.
4. Price and Value:
The price of products and services represents fair value for consumers.
Meeting the FCA’s expectations in relation to each of the above outcomes will provide new challenges for firms. Some might argue, perhaps fairly, that the system doesn’t require change; that many firms do provide positive outcomes for consumers and that those that don’t will only continue to fall short. Perhaps effective application and enforcement of the existing regime could be enough. But the FCA doesn’t see it that way and it has even indicated an intention to take existing principles (including Treating Customers Fairly) even further.
The FCA now wants firms to put themselves in their customers' shoes. But what exactly will that mean in practice?
The financial services sector is wide ranging and serves a hugely diverse customer base. As the customer journey becomes increasingly digitalised, will some groups be left behind? Of course innovation should be embraced, but if I put myself in the shoes of those customers who are not particularly tech-savvy, do I want a fancy, supposedly frictionless, online journey? Perhaps not. The FCA will need to factor this into the rules and, most importantly, it will need to provide absolute certainty to firms as to how they can achieve the above outcomes for all consumers, whilst ensuring the new rules are proportionate and do not conflict with existing principles. It is required to provide this certainty by the regulators code. So, among other things, firms will need to know:
- what must be done
- what must be measured to ascertain compliance, and how
- what training is needed for staff; what new processes need to be implemented; what reports have to be generated etc
If the FCA does not provide sufficient certainty, it may be at risk of over-extending itself because without it, how can the FCA confidently assert non-compliance? And let’s not forget, the FCA recently announced its intention to be a more assertive regulator.
It is still not known exactly how the above will translate into specific rules. The FCA is to consult separately on that. However, it is unlikely that the FCA is going to change any of the above elements or expected outcomes. Too much work has been done to get to this point. But it is worth firms engaging with the FCA to get the certainty they need. The FCA has said it will listen.
Firms can also begin to act now by really thinking about these outcomes. Perhaps a good starting point will be to look at:
- customer demographics and whether they truly understand their customers
- the suitability of products (including how they are priced as against the benefits that come with them – which alone will pose a new challenge for firms)
- the customer journey, for new and existing customers (from signing up to cancelling – often the latter is far more complicated than the former)
- The impact of innovation, tech and data – in particular striking the balance between a frictionless customer journey and information overload, whilst ensuring the customer has truly understood the information that the firm is required to provide
- Whether the firm currently has the resources to achieve these outcomes
There is a lot for firms to think about and not a huge amount of time to act for what is, undoubtedly, a significant change in financial services regulation.