The Financial Conduct Authority is overhauling its Consumer Duty policy in an attempt to drastically improve its consumer protection efforts. Over the next 12 months, the finance industry authority is seeking to “set higher and clearer standards of consumer protection” across financial services sectors and refocus the point of the FCA back to putting customers’ needs first. We’re breaking down the outline of the new Consumer Duty and what is expected of financial firms.
There are several goals of the Consumer Duty, the first and foremost is to strive to prioritise customer care by communicating effectively with the customer, allowing them to understand the products and services they are getting involved with, offering products and services that best meet their needs, and offering customer support as needed.
This will be implemented by the FCA overseeing the self-regulation of financial firms throughout the industry. Financial firms will be required to conduct constant assessments of their practices in order to spot anything that isn’t in the best interest of the customer wherein the FCA will step in to make sure it doesn’t become a common occurrence.
These changes to Consumer Duty relate to products and services, price and value, consumer understanding, and consumer support. These changes are likely to influence regulated firms, such as those in the e-money and payments sector, industry groups, policymakers, think tanks, industry experts and of course the consumer.
Sheldon Mills, Executive Director of Consumers and Competition, said: “The current economic climate means it’s more important than ever that consumers are able to make good financial decisions. The financial services industry needs to give people the support and information they need and put their customers first.
‘The Consumer Duty will lead to a major shift in financial services and will promote competition and growth based on high standards. As the Duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.”
The changes in FCA policy are best summed up as a switch from a passive approach, i.e., not to cause harm, to an active approach, for example to go out of your way to better help. Practically this means financial firms will now be required to end excessive charges and fees, make switching and cancelling products as easy as possible for the customer, provide helpful customer support, particularly not “making people wait so long for an answer that they give up”, provide timely and clear information for customers to understand, “rather than burying key information in lengthy terms and conditions”, provide products and services that are right for the customer, and focus on “the real and diverse needs of customers”.
However, it has been stressed by industry peers that enacting the new standards for the FCA’s Consumer Duty will not be easy and it will cause a disruption across the financial industry. Nigel Reed, Neopay’s Chief Operating Officer, commented: “This is a significant change to the existing TCF rules that firms have been following for some time. It comes as part of a significant shift in the FCA’s approach to become a more assertive regulator which has seen a number of considerable changes for payments and e-money firms as well as other sectors.
“The FCA is expecting firms to be more proactive across all aspects of business and this along with expected changes to Regulation following Brexit, is resulting in many businesses struggling to keep up with the rate of regulatory change.
The FCA is allowing an implementation period of 12 months for Consumer Duty, but firms should not underestimate the amount of work that may be involved.”
There might be a learning curve for financial firms to switch from the old ways of passively doing no harm to actively helping customers, as per the FCA’s new Consumer Duty.
This learning curve is to be accommodated by the FCA with a 12-month period in which they can act to put in place and implement the new policies across their products and services that currently exist.
If you are unsure if this new consumer duty policy will affect your company, contact Neopay today.