Customer Experience

How Do You Comply with the New Consumer Duty?

By Colm Dowd 23 November 2022

Earlier this year, the Financial Conduct Authority (FCA) confirmed plans to bring in a new Consumer Duty that will transform the way financial services organisations serve their customers.

It promises to be one of the biggest shake-ups in retail financial services regulation in over 15 years – and will deliver a ‘higher and more consistent standard of consumer protection…to prevent harm before it happens.’

This article walks you through what you need to know about preparing for the Consumer Duty and ensuring compliance before the 30 April 2023 deadline.

What’s changing with Consumer Duty?

The Consumer Duty is part of the FCA’s mission to become a ‘data-led’ regulator. Over the past decade, they have developed a toolkit to allow its supervisory teams to accurately analyse how and why consumers make financial decisions (making even irrational decision-making processes predictable).

Now, with the Consumer Duty, firms will have to apply the same toolkit to their own processes – to prevent consumer harm from happening in the first place.

Under the Consumer Duty, financial services organisations will be required to:

  1. Take all reasonable steps to avoid causing foreseeable harm to customers
  2. Take all reasonable steps to enable customers to pursue their financial objectives
  3. Act in good faith

What does that mean in practice?

The 3 principles under the Consumer Duty are deliberately vague, setting a high bar for organisations to prove they’re taking all possible measures – not just to reduce harm for their customers, but to reduce even the possibility of harm.

In practice, this means firms must demonstrate that they proactively predict customer behaviour, particularly with on digital channels. They’ll need to collect and analyse data on how customer decisions are influenced by ‘choice architectures’:

  • Choice architecture that promotes good decisions is a ‘nudge’
  • Choice architecture that discourages good decisions is a ‘sludge’
  • Choice architecture that actively encourages bad decisions is a ‘dark pattern’

Firms will have to conduct ‘sludge audits’ that test and analyse their decisioning systems.

What steps should you take to enable compliance?

There are 2 elements to this:

  • Identifying the data you need to collect
  • Determining how to collect it

There are 2 important steps to take:

  • Map out and analyse every step of your customer journey across all channels and touchpoints
  • Ensure you have the correct internal governance processes in place to:
    • Track outcomes
    • Identify, report on and respond to any trends – positive and negative
  • For some organisations, this will be a continuation of existing journey orchestration and customer experience work. For others, it will require a notable shift in the way things are done.

    What capabilities will you need?

    At its heart, the Consumer Duty is about data analysis. You therefore need to make sure you have robust systems in place to capture, visualise, report on and analyse customer data – automatically and in real-time.

    It’s also worth noting that the Consumer Duty doesn’t just apply to firms that deal directly with consumers. Any company able to influence the outcome, target market or performance of a financial product or service will be bound to it. This means you must work with any partners and third parties to check and agree on compliance roles and responsibilities.

    What’s next?

    Two important Consumer Duty dates are impending:

    1. 30th of April: Manufacturers should have all reviews necessary to meet the outcome rules for existing open products
    2. 31st of July: Implementation deadline for new and existing products or services that are open for sale or renewal

    Need a helping hand? Get in touch today to see how we can help you prepare for the Consumer Duty, or download our latest guide, Predictions 2023, for more insights. 

See other posts by Colm Dowd

Head of RegTech

Colm has more than 17 years’ experience in Financial Services. A Programme Manager, Financial advisor, Contact Centre Senior leader, Technology and Risk Transformation Expert. Colm also has qualifications in Business, Finance, Project Management and RegTech from IOB, LIT, PMI and Cambridge University. Now leading exciting initiatives in Regulatory Technology at Engage Hub.

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