We are just three weeks into the start of Consumer Duty, the Financial Conduct Authority’s (FCA) new powers to set higher and clearer standards of consumer protection. But if firms thought they’d get a summer grace period with the new rules, they were in for a rude awakening last week. In its warning to asset managers, reported widely – including by the Financial Times – the regulator wasted no time in reminding firms that they need to start showing progress in short order, or face the consequences.
At the heart of the issue is ‘value for money’. In this case, the FCA says too many firms are failing to provide good value for their clients, with too much focus on regulatory ‘box ticking’ and not enough on identifying true drivers of value. The FCA wants leaders to be proactive, asking themselves whether their products and services really meet the needs of those they are sold to.
For us, while Consumer Duty only extends to financial services, there are some useful intentions and potential implications that could be applied to any organisation. The notion of Consumer Duty goes right to the heart of service culture here in the UK. It’s about the full customer experience. It’s about being fair, achieving value, a fit for purpose product, clarity of offer, and delivery of expected outcome. Beyond that though, it’s about honesty, transparency, and communication. When things aren’t quite right, ensuring firms act in good faith towards their customers and take all reasonable steps to avoid foreseeable harm. For the lawyers amongst us, that’s a high bar!
What can other sectors, especially unregulated ones, learn?
Our research shows time and again that most consumers prioritise value over price alone. Even during the current cost of living crisis, only a small portion of consumers will always favour price. Our latest UK Customer Satisfaction Index (July) found that the number of people wanting a low price and a ‘no frills’ service offer was less than half compared to those wanting excellent service at a higher price.
Some sectors and organisations are already putting customers first exceptionally well. But where there is a need for a regulator to step in, the FCA’s example is a good one, and they should be commended for their consultative and consensus approach. I know other regulators and regulated sectors are watching keenly, as this question of how to deploy and encourage a ‘customer first’ approach is such a key one. As ever, The Institute stands ready to help regulators, financial services firms and any organisation that is serious about improving their service experience.
In October, 3 months after the implementation of the consumer duty, we’ll be hosting a CEO roundtable with the FCA to consider best practice, challenges, and opportunities. Good regulation is both clear and responsive – ready to evolve in fast moving environments so that it continues to be effective and serve its purpose.
There are also governance lessons to take forward off the back of the new Consumer Duty. For some organisations, it will be the continuation of the evolution of processes that they already have in place. For others, it will revolutionise the time and resources spent in this area. This could involve customer outcomes being tracked and measured, where before they weren’t. It could also involve reviewing complaint handling processes from top to bottom, so they are more effective and focus more on the cause, not just the outcome.
More broadly, the impacts of Consumer Duty will be far-reaching, weaving through the design of financial products – to the way firms treat their customers. It has been designed so banks, building societies, insurers, and financial firms across the board put the customer at the centre of everything they do.
According to our recent Breakthrough Research on Governance, which is focused on corporate governance and now available to our organisational members, 76% of customers agree that organisations need to balance the interests of shareholders, employees, and customers. I am glad that the FCA is taking steps with industry to ensure that balance is right in the financial services sector, and I hope that this could in time provide a successful blueprint for other sectors to follow suit. Whether you are in the regulated sector or not, it is the spirit of intent that really matters!