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Consumers are facing an increasing amount of financial stress and complexity from factors surrounding the cost of living crisis. In light of this, it is down to financial firms to inform and support consumers through intuitive systems and platforms that act as a guide for their application journey.
As the UK’s financial regulator, the Financial Conduct Authority (FCA) has announced new standards to protect consumers from this rising financial uncertainty and complexity, Consumer Duty. However, the duty has raised expectations of financial firms to provide services that are benefit-focused for consumers.
In this article, we look at the key rules and guidelines firms will have to follow, and the impact they will have on the industry, to help financial firms develop a strategic plan to prepare for Consumer Duty.
What is Consumer Duty?
Consumer Duty is a new list of standards set by the FCA that aims to deliver improved outcomes and protections for retail customers. It is a continuation of their Treating Customers Fairly (TCF) mandate that sought to protect consumers from unfair treatment and ensure firms act responsibly on their behalf. Consumer Duty aims to take TCF a step further by setting higher and clearer standards of consumer protection whilst requiring firms to actively prove that their processes result in better outcomes for consumers.
Consumer Duty was announced as a result of consumers facing increased financial pressures from the raised cost of living and other factors. Because of this, they are having to make complex decisions in an increasingly complicated environment. It is the responsibility of firms to support these consumers by informing and supporting them to make decisions that lead to positive outcomes. Unfortunately, firms can fail to provide this level of support and give their consumers misleading or ineffective information. Consumer Duty seeks to shift this consumer-firm relationship to one that ensures a positive outcome for consumers whilst protecting them from emerging harms.
What are the final rules and guidelines of Consumer Duty?
- Consumer understanding and support - The Duty requires firms to support their consumers in being able to understand and make informed choices regarding products and services. This support should meet the needs of the consumer to fully enjoy the benefits of the product and services they buy.
- Cross-cutting rules - Firms are required to be honest, fair and transparent with their customers whilst simultaneously avoiding foreseeable harm. This refers to both harm caused by their actions or failure to act on something that could cause foreseeable harm. As a result, firms are required to capture consent by presenting a configurable, transparent narrative at the start of every user journey.
- Price and value - All firms need to assess their products and services to ensure the price is fair for consumers. Moreover, these products and services must fit the needs and required purpose of the consumer to benefit them and bring value as a result. An example is removing paper-based solutions and encouraging online interactions that save time and money for businesses and consumers alike
- Monitoring and governance - The shift towards improving these individual consumer outcomes requires firms to regularly monitor and assess their performance in achieving this goal. As a result, these firms must regularly assess customer data related to each outcome (support, value, transparency) to ensure they are consistent with the aforementioned standards of Consumer Duty.
What impact will Consumer Duty have on financial firms?
The main impact of Consumer Duty on financial firms is the shift to self-compliance to prove they are meeting its benefit-focused standards. Under TCF guidelines, regulators like the FCA would be responsible for compliance checks to ensure customers were treated fairly.
Now, firms must assess customer data at every level of their organisational structure to ensure they are in line with the rules and standards of Consumer Duty. They need to implement features like realtime notifications and granular levels of MI to monitor and assess performance, ensuring the best outcomes for the consumers with whom they transact.
Not only is this time and resource-consuming, but many of these firms will have to restructure or replace their customer management systems/platforms to integrate various compliance checks. Because of this, the FCA provided firms with 12 months to meet the new standards before Consumer Duty comes into effect, along with a set of deadlines to meet.
Seamlessly integrate Consumer Duty standards with Bonafidee
The new series of outcome-focused standards set by Consumer Duty demands firms to make considerable changes to their organisational structure. One of the key challenges involved is the integration of customer and performance analysis to ensure they are meeting the standards of the Duty. To overcome this, firms need a solution that can seamlessly integrate with existing financial systems and optimise the overall process, which is exactly what Bonafidee provides.
Bonafidee’s ID verification and advanced e-signature tools place safety and compliance as a priority. It also allows organisations to configure a customer journey that is accessible to everyone. We understand that one size doesn't always fit all, and therefore allow users to identify themselves by providing a range of ID verification methods. Enabling an individual to complete a user journey in a single session, by providing choice, benefits both the consumer and organisation. As a result, firms can effectively support their customers with a platform that ensures compliance and helps them meet and surpass the standards of Consumer Duty.
