The Financial Conduct Authority (FCA) has called on firms to demonstrate their commitment to the Consumer Duty regulations by adopting a more data-centric approach to ensure compliance and better consumer outcomes. Despite being in effect for a year, the Duty is still facing challenges, especially in areas like customer service and product administration.
Background on Consumer Duty
The FCA’s Consumer Duty officially took effect with an implementation deadline of July 31, 2023, for all new and existing financial products and services. A staggered approach was used, with different obligations being rolled out at various stages. The final phase concluded in July 2024, marking the deadline for closed products and services to comply with the regulations, as well as the submission of firms’ first annual reports on meeting these new standards.
The one-year mark serves as a crucial point for evaluating the Duty’s effectiveness and its impact on the financial sector. It also offers insight into what adjustments might be needed as firms continue to adapt.
Purpose and Strategy
Initially introduced in 2022, the Consumer Duty was labeled as a key strategy to modernize the UK’s financial regulatory system and enhance the attractiveness of British capital markets post-Brexit. With growing economic pressures and increased digital transactions, the focus on consumer protection has become more urgent.
The Duty aims to improve four main areas: product and service quality, fair pricing and value, consumer understanding, and better support. The FCA has been clear about its expectations but acknowledges there has been confusion among firms about how to apply these principles and measure their compliance.
Challenges and Progress So Far
Since its implementation, the FCA has emphasized the need for firms to offer higher returns in the savings market, indicating a no-compromise approach to consumer benefit. By February 2023, the FCA reported that 43% of surveyed companies found the implementation manageable. However, more than half encountered difficulties, underscoring that more work is needed.
In response, the regulator has released detailed guidelines to help firms navigate the complexities of Consumer Duty. The guidelines highlight six focus areas: culture, governance, product value, consumer understanding, monitoring, and support for vulnerable consumers.
FCA’s Viewpoint
On July 31st, 2024, Sheldon Mills, the FCA’s executive director of consumers and competition, reflected on the Duty’s initial impact. He noted that it has already led to changes in company culture, conduct, and governance, ultimately aiming for better outcomes for consumers.
“Some firms have altered employee bonus structures to align with positive consumer outcomes. Others have improved communication efforts by informing customers of better product options and simplifying their messaging,” Mills stated, emphasizing that continuous improvement is expected from the firms.
Room for Improvement
Despite these achievements, feedback from other entities, such as the Financial Ombudsman Service, shows there is still significant room for improvement. According to Abby Thomas, CEO of the Financial Ombudsman Service, complaints about poor administration and customer service remain prevalent even after the Duty’s implementation.
Additionally, a survey by Moneyhub revealed that 41% of consumers have not noticed any changes in their treatment since the regulations came into effect. Only 22% reported seeing any positive changes.
What’s Next?
Looking forward, the FCA is urging companies to provide evidence-backed reports demonstrating their adherence to Consumer Duty standards. This means firms need to focus on using hard data and specific metrics to show how they are working to improve customer outcomes.
At the “Consumer Duty: One Year On” event, Mills emphasized that the Duty is not a one-time initiative but an ongoing journey. He reinforced that the FCA expects continuous evolution from the financial services industry to achieve long-term success and consumer protection.
“This is not the beginning of the end for all our efforts to implement the Consumer Duty but the end of the beginning,” he concluded, signaling that while the initial implementation hurdles have been overcome, the work to fully realize the Duty’s objectives is far from finished.
The FCA remains committed to holding firms accountable and ensuring they continue to evolve to meet consumer needs effectively. For businesses, the message is clear: adaptation and compliance are not just regulatory requirements but essential components of a sustainable, consumer-focused business model.
