In July, the Financial Conduct Authority’s (FCA’s) new Consumer Duty will come into effect. Designed to ensure that consumers get communications they can understand, products and services that meet their needs and receive fair value, it’s an opportunity for firms to build better relationships and strengthen customer loyalty.
But for those unprepared, it could lead to severe repercussions from the FCA, not to mention reputational damage.
Here, Chris Croft, Senior Consultant at Bellevue Law, explains the four key points firms need to know about the FCA’s Consumer Duty.
1. Myth: The FCAs Consumer Duty is just Treating Customers Fairly (TCF) rebranded.
The biggest mistake any firm can make is feeling safe that the new Consumer Duty is TCF rebranded. The new Consumer Duty is a significant shift in FCA expectations which goes much further than TCF, and there will be significant consequences for firms if the new principles are not adhered to.
The FCA has already fired some warning shots. In its review published earlier this year, the FCA said, “We saw some plans that suggested firms may have considered the requirements superficially or are over-confident that their existing policies and processes will be adequate.”
Those who don’t pay heed to this could become the face of ‘what not to do’. It is unlikely that we will see the outcome for a few years, but how firms act now and following the deadline could have huge implications on their future.
2. Myth: Because consumers don’t have the right to enforce the Consumer Duty, there will be no comeback from customers.
The FCA and legislators chose not to give individual consumers the right to enforce the Consumer Duty, leading some people to believe there may be no right of direct action from consumers. This assumption is far from the truth. If firms think that by just ticking the boxes for the FCA, there will be no comeback, they are wrong.
The real risk is that for those who don’t approach it correctly, customer complaints may end up with the Financial Ombudsman Service, which has the power to make substantial compensation awards and will most certainly take the Consumer Duty into account. Furthermore, as the Consumer Duty is a statutory obligation, there is little doubt that attempts will be made to use breaches of the duty in individual and group claims.
The good news is that those who meet the obligations can facilitate better outcomes for customers, and it gives mutuals and other firms a framework that will help them develop higher customer loyalty and improve customer satisfaction.
3. The FCA is not a price regulator – or is it?
The Consumer Duty requires firms to undertake fair value assessments as a way of demonstrating that the price a consumer pays for a product or service is reasonable compared to the overall benefits they can expect to receive.
The FCA has always stated that they are not a price regulator. However, this new obligation sets a new tone and fair value assessments need to take into account the overall market. It remains to be seen how the FCA interprets this aspect of the duty.
4. Judgement day won’t be here for some time.
What you do will be judged in hindsight – For those who are behind or choose not to meet the requirements, the backlash may not be felt until very much, possibly many years later. It is only in retrospect we will see how the FCA, the Financial Ombudsman, and, in some cases, the courts judge whether firms have breached the Consumer Duty. It is crucial that firms have processes in place now not only to meet the duty but to document how they have done so. It will be too late to justify behaviour when the complaints come in.
To remain safe and keep customer relationships strong – as well as to avoid being the poster child for failing in your duties to consumers – it’s vital to get the right advice and meet the requirements necessary.
Those who act now and prepare can lift any pressure and continue doing what they do best – delivering excellent customer service.
It’s not too late to get advice and to catch up. If you’re looking for advice, Bellevue Law’s RegCheck is a fixed fee service which can help you understand the challenges and changes you need to meet Consumer Duty and any other regulatory changes.