The consumer duty consists of the following:
Principle 12 - A new Consumer Principle: “A firm must act to deliver good outcomes for retail customers”
Cross-cutting rules that firms must:
- Act in good faith towards retail customers
- Avoid foreseeable harm to retail customers
- Enable and support retail customers to pursue their financial objectives
Four outcomes:
- Price and value
- Products and services
- Consumer understanding
- Consumer support
The Consumer Duty applies to all firms under FSMA. Its application ranges from product origination to distribution and post-sale activity.
Firms are required to demonstrate that they are providing customers fair value to help them achieve their financial objectives. Price should be reasonable compared to the overall product or service benefits, including product features and quality. Customer needs should be met whilst products should be sold in a clear and transparent way, without leading to foreseeable harm. Firms should be satisfied that the product or service fees are not high compared to its benefits.
How firms can assess fair value
assess features and benefits v price charged
take into account any product/service limitations
assess the expected total price the customer will pay over the lifetime of their relationship
Key considerations for firms
Are you satisfied that all factors and data have been taken into account as part of your firm's fair value assessment?
Have you gathered data from all the parties involved in the distribution chain?
How do your products and services compare to similar products in the market?
Is the fair value to different groups achieved e.g. vulnerable customers?
What corrective actions has your firm taken as a result of its fair value assessment?
What data, MI and other sources do firms use to monitor the fair value on an ongoing basis? how regularly is this data reviewed?
The second aspect under the 4 outcomes involves products and services. In short, firms must ensure that their products and services are well-designed and fit for purpose. They must meet the product design needs, characteristics and objectives of the customers in their target markets, including those with vulnerable characteristics. Distribution strategy for products and services must be appropriate for the target markets. Firms will be required to carry out regular reviews to ensure that their products and services continue to meet the needs, characteristics, and objectives of their target markets. These rules apply to manufacturers of products and services. A manufacturer is defined as a party involved in the creation, development, issuance, management, operation, carrying out and underwriting of a product or service. The requirements will apply to both a manufacturer's existing and new products. Firms will be required to identify their target markets in dept, taking into account any potential harm associated with their products and services.
Key considerations for firms
Is the target market adequately defined for its products and services?
Do its products meet the consumer needs, characteristics and objectives? If not, then what are your mitigation measures?
Have you identified whether its products are services have features which could harm vulnerable consumers?
Does your firm share all necessary information with other parties in the distribution channel?
Are you monitoring that its distribution strategies are being followed correctly?
What data and MI is your firm using to monitor whether its products and services are continuing to meet the needs of its customers and contributing to good consumer outcomes?
The third of the 4 outcomes involves consumer understanding. Consumers can only be expected to take responsibility when the firm's communication enables them to understand its products and services. Firms should therefore support customers by helping them make informed decisions about their products and services. Customers should be given information that they need, at the right time, and presented in a way they can understand. Communication should be tailored I.e. on a 1-2-1 sales basis. Again, the rules apply at every stage of the product or service lifecycle, from product design to marketing and post-sales.
Good practice:
- Layering: providing key information upfront with cross-referencing e.g. actions required by customer and consequences of inaction
- Engaging: communication should be designed in a way that encourages consumers to engage with them e.g. making use of fonts, graphics, and charts.
- Relevant: an appropriate level of detail is required e.g. simple mass product such as current account information will be different to highly specialised product
- Simple: avoid jargon or technical terms; explain key terms in simple form as this will help build consumer trust
- Well timed: delivery in a timely manner and at appropriate touch points throughout the product lifecycle so the customers can digest and assess the information.
Key considerations for firms
Is your firm applying the same standards and testing to deliver good outcomes as they do to sales?
What insights is your firm using to decide how best to keep customers engaged in the customer journey?
How is your firm testing the effectiveness of its communication? How is it acting on the results?
How does your firm adapt communication equally across all channels and types of customer groups?
What data, MI and feedback do the firm use for ongoing monitoring? How often is the data reviewed?
The fourth and final aspect of the 4 consumer outcomes involves consumer support. The FCA believes that consumers can only pursue their financial objectives if their firm supports them in using the product or service they have bought. The support should enable consumers to realise the benefits of products and services and pursue their financial objectives. Firms should make it at as easy to switch products or make changes as it is to buy the product in the first place. Similarly, post-sale support therefore should be as good as pre-sale support. Firms are now required to support customers throughout the lifecycle of the product or service.
Data firms can use for ongoing monitoring in the delivery of good consumer support:
Analysis of customer’s use of products and services
Root cause analysis of complaints
Abandoned claim rates
Speed to answer the telephone and average wait times
Customer call listening exercise
Satisfaction surveys
Key considerations for firms
How is your firm satisfied that customer support is effective regardless of channels?
What assessment has your firm made to meet customer needs with vulnerability? What data, MI and customer feedback is being used to satisfy this?
How has the firm satisfied itself that it is easy to switch or leave its products to buy them in the first place?
What data, MI & customer feedback is being used to monitor the impact of its customer support on the customer outcome?
How effective are your firm's monitoring and oversight of outsourced third-party service providers and do they meet the Consumer Duty?
How Regulatory Counsel can help
In helping firms implement the Consumer Duty requirements, we are helping firms in a number of ways from complete project management and providing specialist project resources to adding consulting and advisory expertise as an external specialist partner.
We are one of the UK's leading regulatory consulting firms, helping companies with regulatory authorisations (licencing), compliance and consulting. Our focus and expertise have enabled us to work closely with regulators and understand the regulatory standards which are required from regulated firms.
Contact us by email at info@regulatorycounsel.co.uk or call us on 0203 6274 724.