Consumer Duty – What Next?

By now, we’re all familiar with what the Consumer Duty aims to do. The bar has been raised, but what comes next? One question now is how to future-proof the framework to anticipate changes. The Consumer Duty has been rolled out, but it isn’t a single rule that’s implemented once and then left. It’s an ongoing obligation – and there are times when we’ll need to change our current approach.

The Duty means businesses now need to go beyond the minimum regulatory requirements and actively work towards achieving good outcomes for their customers. One way to think of it is that consumer outcomes are now at the core of business. Decisions about policy, customer journey and product design can’t be made without understanding what good customer outcomes are and how the firm can help the customer to achieve them.

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 The Duty is transparent and tells us that this involves clear communication, fair pricing, and the design of products that meet the needs of customers in a responsible manner. In effect, the Duty is reshaping financial services through holding firms accountable for ensuring that products actually benefit customers. It shifts the focus from compliance to customer care. 

This represents a huge cultural shift. Treating Customers Fairly asked firms to adhere to principles, while the Duty is outcome based, expecting the proactive delivery of measurable positive outcomes for consumers, not just the avoidance of unfair practices. TCF was, undoubtedly, more abstract and arguably more static. Firms could interpret it in the way that best suited their business, which had the effect of varying levels of consumer protection. Under the Duty, staff are accountable – especially senior staff – for actively delivering good outcomes.

If the Duty aims to ensure that good outcomes are delivered, what do we need to do now?

The old TCF is now long gone, but the ethos of ‘treating customers fairly’ is not. In fact, it’s still a critical part of the Duty. Regular training on the Duty helps to foster a consumer-centric culture, but training should also cover how to put the Duty into action. This means equipping staff to understand the core values of TCF – fair treatment, transparency and customer-focused decisions. Staff should understand that the Consumer Duty is an extension of TCF, and delivering good customer outcomes is rooted in treating customers fairly.

The Duty is designed to be future-proofed. Although it is unlikely to change significantly, the outcomes-based regulation it is designed around means we’ll need to change instead. And this is something that’s critical to understand. Markets, consumer behaviour, and regulatory environments will continue to evolve. This means that our approach and application of the Duty needs to as well.

Developing the first iteration of ‘good outcomes’ was a challenge, but it’s one we’ll need to get used to. The fact is that the definition of good outcomes will need to be continuously reassessed and amended. 

Consumer Duty frameworks need to know when consumer preferences shift, and when to reassess outcome definitions. For example, as more people use digital platforms, expectations around ease of use and security might evolve too. A product or service that once delivered a good outcome might become obsolete. 

Economic factors will change consumer outcomes as well. Inflation, changing interest rates, and employment levels can all change the financial circumstances of consumers. What constitutes a good outcome during a stable economy might differ when things get more difficult.

And although the FCA intends that the Consumer Duty should mean less regulatory change in future, this doesn’t mean no change. Our initial definitions of good outcomes might need to be revised to align with new regulatory requirements.

We’re hosting a webinar on 16th September 2024 at 3:30 until 4:40 to cover the Consumer Duty at this point, fair value, board reports, and next steps. If you’re interested in joining email us at: robert.bell@rbcompliance.co.uk 

Rob’s new book ‘The Consumer Duty’ is due for publication soon. We’ll let you know when this comprehensive overview of the Duty is available to buy.