The next chapter unfolds in the crusade to bolster consumer protection as financial firms face new obligations starting this Wednesday.
Celebrating a full orbit since its inception by the Financial Conduct Authority (FCA), the consumer duty’s first anniversary coincides with its enforcement for both fresh and ongoing contracts open to sale or extension.
As of this Wednesday, the mandate also applies to defunct deals sold prior to July 31, 2023, which haven’t enticed fresh clientele subsequently.
Grasping the intricacies inherent in antiquated systems and the surge in workload, the FCA allotted companies an extra year to adapt.
Graeme Reynolds, high-ranking competition officer at the FCA, conveyed to the PA news agency: “The consumer duty is there to set high standards of consumer protection in financial services. It’s about firms focusing on delivering good consumer outcomes.”
“It very much means consumers should be receiving clear 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.”
“And July 31 marks a key milestone for us in the consumer duty journey.”
Since July 31, 2023, the consumer duty has called on firms to elevate their patrons’ interests to the forefront, ensuring lucid exchanges and offerings that are up to scratch.
Companies are also expected to defend their pricing rationale, demonstrating that their rates embody the essence of fair play.
The duty also aims to support vulnerable customers. Companies should be taking into consideration how they adapt their communications to meet the needs of customers with characteristics of vulnerability.
Firms may, for example, need to make sure there is effective access for those who do not go online regularly.
It is hoped that, over time, the duty will improve trust and confidence in financial services.
The existence of the duty does not mean that people should not shop around. It is hoped that the duty will help to arm consumers with information that could make shopping around easier.
Mr Reynolds said the duty is particularly important “as people deal with the increased cost of living”.
He said: “We’re going to be closely monitoring how firms are complying with the duty, we will of course be acting swiftly and assertively where they aren’t.”
“And our message very much to consumers is: If you’re unhappy with any aspect of your financial services, of course complain to your provider and if you’re not happy with the response you get then the Financial Ombudsman Service is there as well to deal with any of those concerns.”
He said the consumer duty “is very much an important part of our regulatory toolkit”.
Asked about the impacts of the consumer duty, Mr Reynolds said: “I think we’ve seen significant progress over the last year in terms of the benefits that (the duty) is bringing for consumers.”
“We’ve really seen firms focusing on removing those ‘sludge’ practices. So those are those practices which make it much more difficult for customers to act in their own interest.”
“For example, we’ve seen firms enable customers to exit products through a wider range of channels, not dependent on how they took that product or service out, when they originally did so.”
He said firms had also focused on redesigning “customer journeys”, for example, being clear on what is included or excluded in current account products and adding prompts and push notifications.
He added: “We’ve seen a number of firms really improve the way they capture and record information about customer vulnerabilities.”
“I think one of the best examples I’ve seen is firms adopting this ‘tell us once’ approach, so customers don’t need to keep flagging their vulnerabilities and customer support staff are already understanding what needs to be done because they can see a flag on their customer’s account.”
The FCA has also seen savings providers acting quickly to pass on rises in interest rates to customers, he added.
Speaking in February, Sheldon Mills, executive director, consumers and competition at the FCA, said: “Many firms have already made great progress on the duty for example, they are offering the right products and services to the right customers, eradicating jargon and moving clients to less bespoke and cheaper options where that is a better fit.”
“We have seen board-level leaders giving serious consideration to what the duty means for them culturally and operationally. Separately, we have seen some firms offering fairer value too, by increasing value received by savers, reducing fees, and maximising benefits to customers.”
However, Mr Mills highlighted that there is still room for improvement within the industry.
He previously stated: “We do not want to see firms waiting to see if we will intervene to address an issue.”
“Firms also need to get serious about their data and not assume they can just re-package existing information. And we want to see the duty embedded across every firm at every level, with leadership from boards.”
