The webinar featured insights from prominent leaders within the Regulator, including Sheldon Mills, Executive Director of Consumers and Competition at the FCA, Graeme Reynolds, Director of Competition at FCA and Abby Thomas, Chief Executive and Chief Ombudsman of the Financial Ombudsman Service. Other panel guests included Therese Chambers, Joint Executive Director of Enforcement and Market Oversight at the FCA, and Dominic Cashman, Director of Authorisations at the FCA.
Keynote address by Sheldon Mills
Sheldon Mills delivered a keynote address, emphasising the Consumer Duty's role in fostering competition and protecting consumers, in line with the government's 2021 mandate. Mills noted that the Duty had driven positive cultural shifts within Firms, leading to improved customer outcomes. For instance, the FCA's work in the cash savings sector has prompted Firms to increase rates for easy access deposits more swiftly following base rate increases, resulting in an estimated £4 billion in additional income for consumers. Furthermore, efforts to close gaps in the value provided by insurance products is projected to save customers around £70 million.
Mills highlighted that the vast majority of Firms have ceased practices like "double dipping," in relation to Firms' treatment of interest on cash balances held on platforms with many Firms halting this behaviour, returning up to £10 million to the hands of customers. Mills also noted demonstrable improvements in culture, conduct and governance, with Firms developing new data and metrics to better track and understand customer outcomes and meaningful developments in approaches to training and incentives schemes to better align with good customer outcomes.
However, Mills acknowledged that challenges remain. He considered whether the Duty might overly protect consumers at the expense of growth, but affirmed that consumer protection and growth are not mutually exclusive. With 47% of consumers now using digital wallets, Mills pointed to technological advances and artificial intelligence ("AI") as significant opportunities for innovation. He announced the FCA's plans to launch an AI sandbox in due course to support the safe development of new products. Mills cautioned that technological advancements should not come at the expense of wider financial inclusion, noting recently to support those who still rely on cash.
Mills also emphasised the FCA's ongoing partnership with the FOS to ensure consistency in complaints handling. Complaints monitoring continues to be a useful barometer in relation to consumer outcomes. He reassured smaller firms that the FCA's approach would remain proportionate, encouraging the delivery of good outcomes without being hindered by unnecessary complexity.
Looking ahead, Mills revealed that in the coming months, the FCA will publish a Consumer Duty-specific initiatives grid to enhance understanding of how the Duty is being embedded across the industry. The FCA will undertake thematic work across sectors and they plan to focus on price and value as they understand Firms have found this the most challenging, ensuring Firms provide fair value through transparent assessments. While the FCA supports firms making profits, Mills stressed that these profits should not come at the expense of customers receiving fair value.
Echoing recent FCA publications, Mills noted that the FCA has issued a Call for Input on the requirements following the introduction of the Consumer Duty with a view to understanding whether, where and how the FCA can refine current retail conduct rules and guidance. Comments are due by 31 October 2024. The FCA in particular want to address potential areas of complexity, duplication, confusion, or over-prescription, which create regulatory costs with limited or no consumer benefit. The FCA also want to include appropriate flexibility in their rules to be responsive to future changes and innovation.
Abby Thomas on the role of FOS
Abby Thomas spoke about the FOS' role in helping customers across various financial sectors, including banking, consumer credit, pensions, and investments. The FOS aims to resolve complaints based on the principles of fairness and reasonableness, aligning with its vision of ensuring better outcomes for every customer. Thomas highlighted the FOS' recent improvements, such as restructuring teams by industry sectors and leveraging digital tools to streamline complaint handling including automated allocation based on complaint type and sector specialisms. This has led to improved quality scores and faster resolution times, benefiting both consumers and firms.
Thomas underscored the importance of addressing the root causes of complaints. When firms hear from customers that they did not understand something, this should serve as a prompt to reassess their policies and processes and identify areas such as poor administration, lack of support and false promises. Thomas cited instances where firms have failed to provide adequate support, such as a bank insisting that a customer with a health condition visit a branch in person. Thomas emphasised that firms should focus on solutions rather than limitations and use complaints as an opportunity to enhance the overall customer service. There are cases where firms are focused on closing the complaint rather than understanding the origin, but by listening to customers' concerns firms can understand the bigger picture and proactively deal with any root causes, thereby preventing complaints arising from the same or similar facts and circumstances in the future.
Questions for firms to consider are:
- Do you treat your customers as you would expect to be treated?
- How can you use complaints insight to address issues?
- How can you demonstrate you are embedding the Consumer duty into every part of the organisation?
Panel discussion: best practices and challenges
The panel discussion explored areas of good practices and challenges in implementing the Consumer Duty. Participants agreed that a healthy organisational culture, from the top down is crucial for holistic compliance with the Duty. A holistic approach is bringing everything together, not just focusing on price but also prioritising customer understanding. Some firms have updated their training materials to include customer communication strategies, while others have adopted a data-driven approach to understand customer needs better. The Annual Consumer Duty Board reports, the first of which should have been signed off by 31 July 2024, are an opportunity for challenge for product executives, this process can be blended with the role of the Consumer Duty Board Champion. Whilst the approach to completing the annual Board Report will not be a one size fits all solution, its production is an example of where the Duty provides flexibility. A healthy customer focused culture is a culture which consists of continuous improvement, and part of that culture is responsiveness to the best practice, or to any Firm specific feedback provided by the Regulator.
The FCA has noted improvements with how the Consumer Duty is being woven into gateway authorisations applications. Firms should ensure that they can articulate how the Duty works in practice and how their business models lead to good consumer outcomes. This is particularly important for both new authorisations and any variation in permissions applications. During the complaints handling process, the FOS are more likely to find in favour of the firms who have thought of the end-to-end journey. Firms who are mapping out their customer journey have an advantage as they can walk in the customers' shoes, and this allows them to take into account better the customers' needs.
What aspect of embedding the Consumer Duty have firms found most challenging?
The panel also discussed the challenges firms face in Fair Value Assessments (FVA) and outcomes monitoring. They emphasised the importance of using both quantitative and qualitative data to assess fair value and monitor outcomes effectively. The FCA observed that firms with a clear understanding of customer journeys and effective communication strategies tend to achieve better outcomes.
Areas of good practice are in relation to FVAs and outcomes monitoring include:
- Solid data and credible evidence, whether this is quantitative or qualitative.
- Clear consideration of customer cohorts based on target markets, particularly vulnerable customers.
- Consideration of how the benefits received relative to the overall price compares with consideration made over the whole term of the product or service. Clearly defined outcomes relative to the firm's business model
- Understanding what actions should be taken in relation to issues faced and what information would be needed to monitor effectiveness.
- Evaluation of the impact of any actions taken following any adverse outcomes monitoring.
Future directions and expectations
The FCA recognises that the Duty is a significant shift in the way firms service consumers. The FCA reaffirmed their commitment to a proportionate approach to enforcement, focusing on education and support. The FCA plans to conduct a post-implementation review of the Consumer Duty in the coming years to assess its impact and identify areas for improvement. The goal is to see increased consumer trust, fewer complaints, and greater innovation within the industry.
As the Consumer Duty comes into full force, the FCA and FOS remain dedicated to fostering a financial services landscape that prioritises fair value and positive outcomes for consumers. Firms are reminded the Consumer Duty is not a once and done act, it is an ongoing journey which the Regulator is actively pursuing.
With a team of experts working across the full range of the financial services sector, DWF is well placed to advise firms on the continued implementation of the Consumer Duty, and how firms can adapt their current policies and procedures to show due consideration of the Duty.
Our integrated legal and regulatory consulting team can help you navigate through the complex and evolving FCA requirements, by deploying knowledge and resources to support the implementation of stronger requirements.
Please feel free to get in touch with one of our team to discuss any questions you may have or to consider what you support you may need at this time in order to meet your ongoing regulatory obligations.
With thanks to Avani Patel and Rachel Kpiki for their contributions to this article
