The Financial Conduct Authority (FCA) recently published the findings from its review of how payment firms have implemented the Consumer Duty (the Duty), which came into force on July 31, 2023, for open products and services. This new regulatory framework sets higher standards of conduct for firms, requiring them to deliver good outcomes for consumers. With just over half of the 23 firms reviewed being rated as satisfactory, the FCA’s report sheds light on areas of strong performance, as well as significant shortcomings across the payments sector. Below, we summarise key takeaways from the review and highlight areas where payment firms need to take action.
What the FCA found
Of the 23 firms assessed, just over half were found to have implemented the Duty satisfactorily, although minor improvements were still necessary. These firms demonstrated a strong commitment to delivering good consumer outcomes, underpinned by robust governance structures and a consumer-centric approach. However, the FCA expressed concern over the other half, which had only partially implemented the Duty, presenting a moderate to high risk of poor consumer outcomes. The FCA warned that a substantial minority of firms in the payments sector might not be compliant, necessitating significant improvements to avoid consumer harm.
Effective approaches to implementation
The most successful firms aligned the Duty’s requirements with their long-term business objectives. They adopted a structured, systematic approach to implementation, starting with clearly identifying their target markets and defining what good consumer outcomes looked like across key areas such as product value, consumer understanding, and support. These firms established strong governance frameworks, which monitored progress and highlighted shortfalls through comprehensive management information (MI), often using Red, Amber, Green (RAG) rated measures to assess risks and identify areas for improvement.
These firms also embedded a culture of accountability, where senior management and boards actively scrutinised Duty implementation and drove necessary enhancements. By taking this proactive approach, firms were able to deliver sustainable improvements in consumer outcomes and ensure ongoing compliance with the Duty.
Common shortfalls in implementation
In contrast, the firms that fell short often failed to recognise the Duty’s higher standards or underestimated the risks associated with their products and services. Some firms believed their payment products were lower risk compared to other financial products and did not make sufficient changes to comply with the Duty. These firms tended to rely on pre-existing processes, lacking a clear focus on defining their target markets or setting measurable consumer outcomes.
Furthermore, many firms applied existing MI measures, such as complaints data, without linking them directly to the Duty outcomes. This left them unable to pinpoint where they were delivering poor consumer outcomes or identify areas requiring immediate remediation.
Target market and agent oversight
The FCA stressed the importance of clearly defining target markets, particularly for higher-risk products, where a broad target market could lead to mismatches between products and customer needs. Firms offering medium to high-risk products should narrow their target markets to ensure they are not exposing consumers to inappropriate levels of risk.
Firms were also found lacking in their oversight of agents and intermediaries. Although many firms provided training and onboarding to their agents, they had not adapted their monitoring processes to demonstrate that agents were meeting the Duty’s requirements. Ongoing monitoring and oversight are essential to ensure that intermediaries are delivering the same high standards of consumer protection required by the Duty.
Fair value assessments
One of the most significant areas for improvement was in firms’ fair value assessments. The Duty requires firms to ensure that the price consumers pay for a product or service is reasonable compared to the benefits received. The FCA found that many firms’ assessments fell short of expectations. Some focused solely on price benchmarking against competitors without considering the broader context of costs and benefits, while others listed elements of price and value without concluding whether fair value was being delivered. Firms must provide a clear rationale for their assessments and consider how pricing structures impact different consumer groups.
Consumer understanding and support
The FCA expects firms to support consumers in making informed decisions by providing clear and accessible communications. While some firms demonstrated good practice by testing communications and ensuring they were tailored to consumer needs, others relied on outdated approval processes and failed to conduct sufficient testing. The FCA emphasised the importance of both pre- and post-testing communications to ensure they are effective in supporting consumer decision-making.
In terms of customer support, the FCA found that some firms struggled to provide clear and accessible support channels. Firms must ensure that they have appropriate systems in place to address customer queries and complaints promptly, particularly for vulnerable customers.
Governance and management information
Good governance is critical to delivering the Duty’s outcomes. The FCA found that the best firms had clear governance structures that regularly assessed and challenged Duty implementation, with comprehensive Board-level MI that tracked consumer outcomes and highlighted areas needing improvement. However, some firms did not demonstrate sufficient board-level engagement with the Duty, and their MI did not adequately capture key metrics related to consumer outcomes. Boards need to take a more active role in scrutinising and improving their firms’ compliance with the Duty.
How Neopay can help
At Neopay, we understand the challenges payment firms face in meeting the FCA’s Consumer Duty requirements. Our team specialises in providing tailored compliance solutions that ensure your firm not only meets the regulatory standards but also delivers the best possible outcomes for your consumers.
Our services include:
- Comprehensive gap analysis: We will review your firm’s current practices and identify any gaps in your Consumer Duty compliance, ensuring you are prepared for both open and closed products.
- Governance and oversight frameworks: We help firms establish clear governance structures, including effective agent and intermediary oversight, that ensure all aspects of the Consumer Duty are embedded within your operations.
- Fair value assessments: Our experts will guide you in conducting robust fair value assessments, helping you consider all relevant factors and ensuring that your pricing structures provide fair value to all customer groups.
- Customer communications and support: We offer bespoke solutions to enhance your consumer communications, making them clear, effective, and supportive of informed decision-making.
- Ongoing monitoring and MI: We work with you to develop a comprehensive suite of management information that accurately reflects your Consumer Duty outcomes, allowing for real-time monitoring and swift action to address shortfalls.
As the payments sector continues to evolve under the FCA’s higher standards, partnering with Neopay ensures your firm is not only compliant but positioned to deliver sustainable consumer protection and business success. Contact us today to learn how we can support your firm in meeting and exceeding the FCA’s Consumer Duty requirements.