What is the new Consumer Duty and how does it apply to commercial finance?

It’s been described as one of the biggest shake-ups to retail financial services regulation.

The Financial Conduct Authority's (FCA) Consumer Duty comes into force from 31 July 2023 for existing products and services, seeks to ensure customers receive these 'good outcomes’ and that firms provide evidence that these outcomes are being met. It applies to 'all firms who determine or have a material influence over customer outcomes – not just those with a direct customer relationship.'

The Duty applies to products and services provided to both ‘B2C’ (Business-to-Consumer) customers and ‘retail clients,’ including SMEs. This blog focuses on commercial finance.

Let’s start by unpacking what the FCA means by “good outcomes”. Under the Duty, firms should provide customers with products and services that meet their needs and offer fair value. Customers should receive communications they can understand. They should get the customer support they need, when they need it.

Commercial lenders are field-proven when it comes to supporting SME customers through thick and thin, whatever the overall state of the economy. They have pioneered and developed extensive, tailored offerings including business support, advice, online and in-person hubs, mentoring and workshops covering specific start-up and growth topics.

They are flexible, and have helped businesses survive and thrive through Covid-19 and adapt to changing circumstances. Many commercial lenders have launched bespoke cost-of-living support for SME customers and their employees.

So it is clear that they have long been committed to delivering the outcomes required. The Duty also requires firms to provide evidence that their products consistently deliver good outcomes. Commercial lenders will need to show that they:

• offer products and services suitable for customers

• provide clear information about products, terms and conditions, so it is easy for customers to make informed decisions

• respect customers' varied needs, including any in vulnerable circumstances, and do so every time they interact with them (for example, through proportionate and appropriate forbearance and enforcement policies)

• offer genuinely helpful customer support which is easy to access.

This isn’t a box-ticking exercise. The FCA 'will make the Consumer Duty an integral part of our regulatory approach and mindset.'

What causes poor outcomes?

Last year the FCA wrote to all retail banks regulated for SME lending to signpost themes which 'drive poor customer outcomes’. It stated ‘any organisation lending to SME customers’ should consider its findings.

Since then, it has reviewed larger firms' implementation plans and found many (primarily in retail financial services markets) have established work programmes to embed the Duty.

The review identified examples of good practice in how firms are implementing the Duty across governance, culture, deliverability, their work with third parties, their understanding of the four outcomes, and their data strategies. And it highlighted areas for improvement.

Three key areas:

The FCA has published portfolio letters which set out sector-specific expectations for firms with a common business model. The letter to Retail Finance providers describes 'three key areas where firms should particularly focus their attention' during the second half of the implementation period: effective prioritisation; embedding the substantive requirements; and working with other firms.

Where to get help:

• Visit the FCA’s Consumer Duty homepage for on-demand webinars and podcasts, the option to sign up for email updates and the Finalised Guidance.

• Come to UK Finance’s interactive IMPLEMENTING THE CONSUMER DUTY WORKSHOP which will focus on practical actions to implement the Consumer Duty in your organisation.

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