The Financial Conduct Authority’s new Consumer Duty will have a fundamental impact on how financial services and insurance firms meet their customers’ needs. The FCA Consumer Duty will mean that consumers should receive communications they can understand, products and services that meet their needs and offer fair value, and that they get the customer support they need, when they need it.
The new Consumer Duty is designed to vastly improve consumer protection and implement higher standards on how organisations communicate their products to current and potential customers. The new requirements seek to:
- Make it easier for consumers to cancel or switch a product
- Provide more accessible customer support and advice
- Make key information regarding products and services clearer and more accessible
- Ensure firms provide consumers with products that meet their needs
- Ensure those diverse needs are addressed at every stage of the consumer lifecycle and with every interaction
With a deadline of 12 months to ensure compliance for new products and services and a further 12 months for existing products and services, what do the new rules mean for firms and how can you guarantee you meet the regulations?
5 questions firms must ask themselves about the new FCA Consumer Duty
With such a short deadline to ensure compliance with the new FCA Consumer Duty, financial services organisations must start the process by asking themselves these five key questions:
1. Do your products really meet consumers’ needs?
The new Consumer Duty requires providers to proactively ask themselves whether their products and services really meet consumers’ needs and sets a high standard of compliance by requiring that “all reasonable steps” are taken to ensure firms meet their responsibilities to consumers. Conducting an audit of the current products and services you have available on the market and whether those products and services are working for your customers is a key first step in preparing for the Consumer Duty.
The deadline for new products and services is slightly longer than for existing ones but building time into development plans for new products to address this question should also be a priority. Market research to accurately assess consumer needs is also likely to require more in-depth analysis of data. Firms may consider making new hires focussed on data science and data analysis or upskilling their current teams.
2. What will compliance look like for you?
Compliance with the new Consumer Duty will look different for every organisation. For some it will mean simply deepening processes that are already either in place or planned. For others it will require the implementation of new processes and procedures that will be time-consuming and costly. Even those organisations that provide products and services but who do not have a direct relationship with the consumer will be bound by the new Consumer Duty.
Conducting a full review of the processes already in place in your business will be necessary to determine what compliance will look like for you.
3. What resources are needed to ensure compliance?
Once you understand what processes and procedures are already in place you can compare those with the requirements laid out in the new Consumer Duty. Conducting a comparative analysis will help you determine the time and resources needed to ensure your compliance and to map out a project timeline to implement these changes.
It is important to determine if new skills or additional team members will be required to assist with compliance, giving you time to make any necessary hires.
4. What will the consequences of failing to ensure compliance be?
Thanks to industry opposition the harsher penalties initially proposed by the FCA for non-compliance or breaches of the Consumer Duty have been dropped. However, firms should be prepared for consumers to utilise the already extant redress system leading to an increase in the number of redress claims they may face.
Businesses should undertake to strengthen their compliance teams and ensure that at both senior and junior levels claims handlers and compliance officers are aware of the new regulations and are familiar with the current systems of redress for consumers. Non-compliance could prove costly.
5. Will your profitability be impacted?
As the new regulations are designed to make product pricing more transparent to customers and to make it easier for them to leave, cancel or transfer out of a product, some organisations may experience a loss of business or a fall in profitability. However, those firms that comply with the regulations on fairer and more transparent pricing quickly are likely to see an increase in the number of consumers choosing their products.
By swiftly and efficiently ensuring their products and services with the new regulations financial services firms look set to provide consumers with even better outcomes when it comes to understanding the financial products and services on offer to them.
Full implementation of the FCA Consumer Duty is expected by April 2023. In the meantime, firms can begin to assess the impact of the new regulations on their business and begin to ensure their financial products and services are compliant.
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