Consumer Duty: Not once and done

Speaker: Nisha Arora, Director of Cross Cutting Policy and Strategy
Event: Deloitte: Consumer Duty – Next Steps
Delivered: 1 November 2023
Note: This is the speech as drafted and may differ from the delivered version

Highlights

• Three months on from the Duty coming into force, the good practices we have already seen underlines the importance of this work. Continuing this momentum will realise more and more benefits to consumers, firms, and the UK as a whole.
• The Consumer Duty is not a once and done exercise. Firms need to make sure they are learning and improving continuously and must be able to evidence this in their annual board report.
• Those with closed products and services should check they are on track to meet the 31 July 2024 implementation deadline.
• The Consumer Duty remains a top priority for the FCA. We will continue our work across all sectors to test firms’ implementation and embedding and will share good practice to support the industry.

Frank explained to his bank that he found it difficult to read as he was losing his sight. He asked his bank to send him communications by email, so he could use software that turned emails into speech. However, the bank continued to send him paper mail. Every time he received a letter by post, he had to call up the bank to ask them to re-send the correspondence to him by email. 

Andreas bought his car insurance policy online. It was an easy process, and he was happy with the service he'd received. When Andreas later needed to cancel his policy, he tried to do this online too, but couldn’t. He could only cancel the policy by calling his insurer. And when he did call, he had to wait for more than 20 minutes before getting through.

Renata’s partner recently passed away. She needed to sort out their affairs at the bank. She was told there wasn’t anyone in that day who deals with bereavements. She was told to come back another day.  

And findings from our latest Financial Lives survey[1] tell a similar story. We found 14% of adults – or 7.4 million people – unsuccessfully attempted to contact one or more of their financial services providers. 7% - that’s 3.6 million people - were able to contact one of their financial services providers but could not get the information or support they wanted.

We also found that adults with one or more characteristics of vulnerability were more likely to report that customer support services did not help them at all. 20% of those with low financial resilience and 20% of those with low capability reported that provider communications did not help at all, compared with 12% of those with no characteristics of vulnerability.

So it’s perhaps no surprise that just 41% of adults had confidence in the UK financial services industry.

These stories and statistics underline why we need the Consumer Duty[2].

Consumers need and deserve better 

By meeting these needs and delivering better consumer outcomes, we will all benefit. Higher standards and healthier competition will improve trust, support growth and innovation, and in turn improve the UK’s standing on a global stage. Enhancing consumer trust and inward investment are huge potential benefits for us to realise, and the Consumer Duty is an important piece of the growth puzzle.

It’s been a year now since boards scrutinised and signed off their firms’ implementation plans. And now, 3 months on from the Duty coming into force, some of the good practices we have already seen reveal the benefits for consumers and why we need to maintain momentum. 

For example, we’ve seen:

• Firms simplifying language in the letters they send to customers and introducing more accessible formats to improve outcomes for vulnerable customers.
• Firms being more upfront on their websites about exclusions so it’s easier for customers to understand whether a product meets their needs.
• And firms reviewing their fees with fair value in mind.

I’d like to thank you for all the work you’ve done to make changes to meet the Duty’s requirements and to meet the deadline.

Many firms have approached this in the right spirit, using data and insights to put themselves in their customers’ shoes, thinking seriously about the outcomes they deliver for customers and making real improvements to their products and services.

We recognise that this has taken significant effort and has been a real shift in both practice and culture.

But if you think it’s all over, you’ll need to think again! The work to embed the Duty has only just begun. The Consumer Duty is not a once and done exercise.  If we want to continue to see the benefits, we all need to keep a foot on the gas.  

So today I want to talk to you about the importance of the Consumer Duty not being a once and done event, about where we’d expect your focus to be now, and then what you should be expecting from the FCA.

The Consumer Duty isn’t once and done

So, what do I mean when I say the Duty isn’t a once and done event?

The Duty isn’t something where you can tick the Consumer Duty box on your to-do list and move on. It’s something that needs to become part of who you are as a firm, your culture, and how you do business, running across your whole organisation from Board to front-line delivery, from product design to communications and customer support. 

To meet the shift in expectations required by the Duty, you need to ensure that your customers’ interests are central to your culture and purpose, and that this is embedded throughout the organisation, in your strategy, governance, leadership and people policies.

For many firms, this has required a significant shift in both culture and behaviour. Firms who have met our expectations have embraced this shift. Some have aligned their purpose and values to delivering good consumer outcomes, updating internal cultural and training materials to reflect this. And some have reviewed reward and incentive structures and performance management frameworks to ensure they reflect and support delivery of the Duty. 

So it’s really important that this isn’t just seen as a compliance exercise but creates a shift in culture throughout firms. And the shift has to endure. This means that you need to make sure you’re assessing, testing, understanding and evidencing the outcomes your customers are receiving – on an ongoing basis. Where we have seen firms doing this well, they have focused on the outcomes they are aiming to deliver. And they have identified the data they need to measure and monitor that these outcomes are delivered. Where firms are not meeting our expectations, it’s often because they are just repackaging existing data and haven’t thought seriously about what information they would need to really understand consumer outcomes.

And I would stress that firms who haven’t considered how they will monitor outcomes for different groups of consumers, including those in vulnerable circumstances, will need to do more to meet our expectations.  

The work you carry out should enable you to ensure and evidence that you’re delivering good outcomes and to highlight where there are poor outcomes. And where you identify these, you need to take appropriate action to rectify the causes.

As I mentioned earlier, this could mean making changes to communications to make them more easily understandable, or adapting or amending a product or service. 

We want to see firms learning and improving continuously. If you’ve not looked in detail at your customers’ experience, and aren’t monitoring outcomes for customers, including different groups, an ongoing basis, we’ll be doubtful that you’ve got to grips with this.

What comes next for firms 

It has been 3 months since the 31 July deadline – so what next?

Well, as I’ve just set out, you need to make sure and be able to show us that you’re delivering good consumer outcomes. This will include your implementation plan, data and monitoring, your internal assessments, and how you are preparing for the closed products deadline.

You need to go back and review your implementation plan, and check you’ve made the changes you set out to make. Then ask yourself whether these changes go far enough. Make sure you are focused on whether you are delivering the outcomes you set out to achieve for the consumers in your target market, especially for customers with characteristics of vulnerability. 

The same goes for your data and monitoring processes. Think about how you’re going to harness the information you have to improve your products and services and evidence the outcomes you’re achieving for your customers. Ask yourselves whether there is any data you are missing and you need to capture to test and challenge yourselves that you are achieving the right outcomes. 

Which brings me to one of the key aspects that you should now be considering – your annual board report. 

As we set out in our rules, at least once a year your board, or equivalent governing body, must review and approve an assessment of whether your firm is delivering good outcomes for your customers. 

This assessment should include the results of your monitoring on whether your products and services are delivering expected outcomes in line with the Duty - and any evidence of poor outcomes.

And before signing it off, your board needs to agree the actions required to address any identified risks or poor outcomes and agree whether any changes to your firm’s future business strategy are required. This will take time to do well, so don't delay!

This assessment will be part of the evidence we use to assess a firm’s ongoing compliance with the Duty. You’ll need to be able to provide it, and the management information that sits behind it, on request. As I said, the Duty is not once and done. Firms’ actions, assessments, testing and evidence need to be continuous.

The other area I wanted to touch on is next year’s implementation deadline for closed products and services. 

From 31 July 2024 the Duty will apply also to closed products and services, but there will be differences in how some elements of the Duty will apply.

For example, we don’t expect firms to consider the target market and distribution strategy for products that are no longer on sale. We will, however, still expect you to consider if closed products and services could lead to foreseeable harm or frustrate customers pursuing their financial objectives.

I hope you have started the necessary work to get ready for the 2024 deadline. We’ve emphasised many times the need to start in good time so for those of you who aren’t so advanced in your preparations, I’d encourage you to take steps now to make sure you’re on track. In the words of my colleague Sheldon earlier this year[3] – ‘just eat the frog’!

What firms can expect from us

So I’ve talked about what we expect from firms – but what should you expect from us?

Well, the Duty is now an integral part of our approach and mindset at every stage of the regulatory lifecycle - including authorisations, policy development, supervision and enforcement. So, you can expect it to be a golden thread that runs through all your conversations with us.   

The Duty is already enabling us to intervene in markets quickly and take robust action where consumers are not getting good outcomes. I suspect it was not simply coincidence that we saw significant improvements in the savings rates available as we began scrutinising the cash savings market including banks and building societies’ fair value assessments. But that review continues, and we will provide an update later this autumn. 

In the coming months we will continue our work across all sectors to test firms’ implementation and embedding of the Duty.

For example, we have recently concluded our second survey measuring small firm’s embeddedness of the Duty, with plans for a third survey in the new year. And we will continue to look at and address issues of concern.

In February 2023, you’ll recall that we sent out letters identifying key issues for firms to consider in each sector or portfolio.

For example, in the general insurance sector, we made it clear that we expect firms to ensure that customers are at the centre of the claims process, so that unreasonable delays to claims processing are avoided and fair claims settlements are made.  

In consumer finance, we highlighted that we are looking at some of the products and services provided in the second charge mortgage market. Here, we want to know if, under the Duty, customers are getting fair value. This includes whether fees are representative of the costs incurred by the brokers and lenders.  

In addition to the work that’s focused on tackling the greatest harms and areas of concern in different sectors, we also want to ensure that problems that consumers face across multiple sectors are also addressed.

For example, poor or inconsistent support that means consumers aren’t able to act in their interests, whether that’s to choose a product, switch or complain. Or poor communications that mean that consumers don’t get information they need when they need it that they can understand and act on.

There is real scope for learning from different industry areas, and we want to drive forward good practice, improvements and better outcomes across the whole financial services sector.

An early area of focus for us will be to look at firms’ complaints data, identifying where the Financial Ombudsman Service[4] uphold high numbers of complaints. We want to hold firms to account for dealing with complaints fairly and also ensure that they have robust mechanisms in place to learn from the root cause of the complaint.

As we’ve previously said, our supervisory and enforcement approach will be proportionate to the harm, or risk of harm, to consumers. Where we discover problems, we will prioritise the most serious breaches and act swiftly and assertively. You can expect us take robust action, such as interventions or disciplinary sanctions where needed.

But our focus is not just on identifying and tackling bad practice – we also want to showcase where firms are doing well. We will continue to share good practice examples with you so firms can learn from these and can continue to change and improve in how they deliver good outcomes for consumers. We will use the insights we gather from our supervisory work to produce good and poor practice reports, as we did following our review of fair value assessments[5].

You can expect to hear more from us about our work over the next few months. We will be sharing some of our initial thoughts on findings and priorities in our webinar on 6 December. I’d encourage you to sign up for this[6] if you haven’t already done so.

Concluding remarks

In my earlier remarks I noted that the Consumer Duty isn’t a once and done event and the importance of keeping your foot on the gas. But this doesn’t just apply to firms – it’s also the case for us.

The Duty will remain a top priority for the FCA in how we make financial services markets work well. And it’s central to our transformation to becoming a more assertive regulator with an enhanced focus on how we use data.

We’re committed to working closely with you and supporting you as you continue to improve outcomes for consumers.

We recognise that a lot of hard work has been done so far by many firms to embed the Consumer Duty.

We look forward to continuing to see both the benefits for consumers and also the benefits to firms and the wider economy, as your work to embed the Duty leads to better outcomes, increased trust in the sector, and greater opportunities for you to compete and innovate, and for us to regulate efficiently.

I mentioned at the start some statistics from our Financial Lives survey. Let’s make it an ambition that, in our next Financial Lives survey, we see real progress in these numbers, as we see your efforts to embed the Duty reflected in the increased confidence and trust consumers have in financial services.