The new Consumer Duty: good outcomes start with customer understanding

The financial services sector is among the most regulated industries in the world. In the UK the Financial Conduct Authority’s (FCA) new Consumer Duty sets an even higher bar in how UK banks, insurers and wealth and asset managers treat their customers.

Specifically, it demands that “a firm must act to deliver good outcomes for retail customers,” whether interacting through direct or indirect channels.

With the new rules finalised and the implementation calendar set, firms now have clarity on what they can expect from the regulator and need to focus on delivering targeted change programmes.

The deadline for new and existing products that are open to sale or renewal is the end of July 2023 and the end of July 2024 for closed book products. The three-month extension highlights the scale and complexity of the task at hand for financial services firms. But with a Board requirement to agree implementation plans by the end of October 2022, firms must move quickly to strategically prepare for the changes ahead.

Recent EY research provides insight into the industry’s preparations and progress toward compliance. In conversations with 32 different firms that together oversee 60 per cent of assets under management in the UK, we explored their plans and priorities for implementation, including new technology deployments, training needs, cultural changes and potential benefits for the business. 

Progress to date and remaining challenges

Though we talked to many different types of firms – including large global banks, smaller challengers and specialist firms – they agreed broadly on several points. First and foremost, Consumer Duty is a focus for the vast majority, with 90 per cent ranking it as a top-three regulatory priority. Many said that they wanted more time to comply with the new standard, but also that they were confident that they would meet the deadline. 

Another area of consensus is that a full 80 per cent of firms are concerned about the challenge of evidencing good outcomes, a primary requirement of the new Duty. A slightly higher proportion of firms view technology transformation as the answer. The trick will be to effectively integrate existing systems, rather than introducing more complexity into already complicated IT environments, by adding dedicated tools for collecting data and reporting on good outcomes. 

A deeper understanding of customers

There is no doubt that better technology and stronger data management will be key to complying with Consumer Duty, both at the initial deadline and to make compliance and reporting processes more efficient in the future. An equally important change though is the shift in mindset around consumer understanding. 

Financial services firms have long worked towards better customer centricity. The duty sharpens this focus, and will ensure that every firm more fully understands exactly how their customers engage with their products and services, both at the point of sale and across the life span of customer relationships. Consumer Duty challenges banks and their peers to gain deeper knowledge of their customers, particularly their:

  • Motivations to purchase
  • Expectations around value
  • Need for ongoing support

Under this new principle, firms need to know their customers well enough to be able to recommend suitable products, but also to ensure customers understand those products and know what they are buying. If contractual language is too complex to comprehend, for instance, even appropriate products may not produce good outcomes. 

Ideally, employees at every level will have a good view of customer needs and the customer experience. Firms that realise that vision, equipping their staff with the necessary training and tools, will be better positioned to provide the evidence of good outcomes that the FCA is looking for. 

In this sense, complying with Consumer Duty is as much a cultural exercise as it is a matter of data and technology deployment and reporting. It all makes this regulatory change an item for senior leaders’ strategic agendas. 

According to the FCA, complying with the proposed Consumer Duty will “require a significant shift in culture and behaviour.” Though they are accustomed to operating under intense regulatory scrutiny, UK financial services firms should expect a heavy lift to achieve compliance. While the Consumer Duty will change the way financial services firms think and operate, it will also drive meaningful improvements to customer experience and in turn better business.

For further insights read our full article: How the financial services industry is preparing for Consumer Duty | EY UK