What is Consumer Duty?
The Consumer Duty is a set of rules introduced by the Financial Conduct Authority (FCA) to enhance consumer protection within the financial services sector. Here are the key aspects:
-
Customer-Centric Approach: The Consumer Duty requires firms to prioritize customers’ needs and act in their best interests. It places consumers at the heart of business operations.
-
Fair Value: Firms must offer products and services that are fit for purpose and represent fair value. This ensures that consumers receive reasonable benefits relative to the costs incurred.
-
Clear and Transparent Information: The Duty emphasizes transparency. Firms must provide clear, jargon-free information to help consumers make informed decisions.
How Does It Impact Financial Services?
-
Culture and Conduct: The Consumer Duty sets higher standards for the culture of firms. It encourages ethical behavior and responsible conduct.
-
Product Design: Firms must design products that align with consumers’ needs and deliver fair outcomes. This includes assessing affordability and suitability.
-
Customer Communications: Clear and concise communication is crucial. Whether it’s explaining fees, risks, or terms, firms must ensure transparency.
What difference will customers see?
We don’t think customers will see wholesale changes from 31 July 2024 but will likely see clearer explanations of products and services, and continued improvements in customer support. Firms have been focusing particularly on processes that might make it difficult for customers to do what they want, particularly vulnerable customers or those in financial difficulty, whether that’s digitally, on the phone or in person, and seeing what they can do to make it easier. More communications will be tested directly with customers to ensure that they’re easy to understand and the customer knows what is required of them.
Overall, Consumer Duty is not a ‘big bang’ moment. It builds on customer focused products and services from firms and we expect customers to see evolution, not revolution.
Will Consumer Duty impact on price?
There has been much debate recently about the pricing of mortgages and savings. The Consumer Duty rules require firms to analyse their products and services to ensure they provide fair value with a reasonable relationship between the price consumers pay and the benefit they receive. So it won’t necessarily change prices, and firms will still be able to charge different rates for different products. However, firms will need to be able to justify the price they charge to themselves and their Boards and keep that under review. The FCA will also be able to ask to see those justifications to see if they take account of everything the regulator would expect to see and will be able to take action if they’re not satisfied.
Using savings rates as an example, these are driven by a number of factors, not just the Bank of England’s Bank Rate – one key factor is whether someone wants instant access or can deposit money for a longer period of time. If the customer wants to access their money at any time interest rates will usually be lower to reflect the flexibility that offers. Conversely, interest rates will tend to be higher if the customer is prepared to deposit money for a longer period.