Consumer Duty Explained
The Consumer Duty directs the actions of firms operating within the financial sector and outlines the standard to which the Financial Conduct Authority will hold the firms it regulates.
The Consumer Duty in this way is a central document to FCA compliance and avoiding penalisation, as well as a thriving business and happy customers. So, what is Consumer Duty?
What is Consumer Duty?
Consumer Duty is a document created by the FCA on the treatment of customers in the financial market. The guidance sets standards for consumer protection by firms and ensures firms can help consumers attain their financial objectives by putting consumers’ needs at the forefront of their service.
Why Will Consumer Duty Lead to a Major Shift in Financial Services?
In the FCA’s own words, the new Consumer Duty being implemented will lead to a ‘major shift in financial services’. The Duty, which will come into play on the 31st July 2023 for new and existing products open to sale or renewal, and the 31st July 2024 for closed products, sets stricter standards for firms.This new standard is expected to encourage more competition and innovation amongst firms within the financial sector, as well as making it easier for the FCA to identify those not meeting Consumer Duty financial services standards.
How Does Consumer Duty Apply to Firms Throughout the Distribution Chain?
The Consumer Duty applies to all UK firms which have an effect on the design or operation of retail products and services, in order to deliver customer outcomes. This includes the price and value of the product or service, and customer support and communication.
Firms do not necessarily have to have direct contact with customers to fall under the Consumer Duty requirements.
Acting in Good Faith
To act in good faith is to act with honesty, fair and open dealing, and consistency with the reasonable expectations of customers, according to the FCA.
Firms are required to act in good faith under the Consumer Duty, so as to deliver customer outcomes.
What Are Consumer Duty Board Champions?
Like the current 11 principles, once the 12th principle comes into effect, firms will need to abide by it in order to be FCA compliant. This includes monitoring customer outcomes and further taking measures to improve products and services to make certain good outcomes are being achieved.
How Will the Consumer Duty and the 12th Principle of Business Provide Better Consumer Protection?
The FCA expects a champion to be appointed to the board of every regulated firm, although this can be done in a way which is compatible with the existing roles and responsibilities of the board, and board set up.Consumer Duty board champions are responsible for ensuring the Consumer Duty is mentioned in relevant discussions, ensuring the firm continues to recognise and meet the standards of the Consumer Duty.
Definition of Closed Products
As previously mentioned, the enforcement of the new Consumer Duty for firms depends on the status of open or closed products. Consumer Duty closed products include products or services which are no longer sold nor marketed to customers and are not available for renewal.
Impact of Consumer Duty
The main impact of the FCA consumer duty is:
- Enhanced consumer protection:
- Increased transparency
- Accountability
- Improved customer outcomes
Overall, the impact of the FCA consumer duty is expected to lead to a more consumer-focused financial services industry, with increased protection, transparency, and accountability for customers.
What Are the Expectations for Consumers vs the Expectations for Firms?
Under the Consumer Duty, the duties of consumers are still expected to take responsibility for their financial decisions. However, the FCA does recognise that this is dependent on the integrity of the firm’s products and services. Therefore, firms are expected to treat consumers with honesty, fair and open dealing, and act in a way which informs the consumers ability to meet their needs and financial objectives.
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