In July 2022, the UK’s Financial Conduct Authority (FCA) published a policy statement for a new Consumer Duty that will combat a number of poor practices across the financial services sphere by setting higher and clearer standards of protection for retail consumers.
Specifically, the FCA is taking aim at poor customer support, unfair valuations of products, products unfit for purpose, and behavioural biases. The new duty will address these practices by requiring firms to act to embed positive consumer outcomes in all aspects of their business.
Consumer Duty vs TCF: What’s changing?
The new duty will add to the FCA’s Principles for Business, operating alongside the familiar ‘Treating Customers Fairly’ (TCF) principle. But how do the two concepts differ?
While TCF focuses on the need for firms to pay due regard to the interests of their customers and treat them fairly, the new duty goes further and raises the bar higher than before. Key differences between the TCF and the new duty include:
Moving from framework to measurable outcomes
TCF was introduced to ensure firms have the right infrastructure, culture and framework to enable the fair treatment of consumers. Under TCF, it’s the framework that is questioned by the regulator.
The Consumer Duty seeks to quantify compliance, requiring firms to demonstrate to the regulator the effectiveness of their frameworks through delivery of good outcomes for the consumer.
Shift in responsibility
TCF made it the regulator’s responsibility to decide if a firm has acted in bad faith.
The Consumer Duty places direct responsibility on the firms themselves comply with the duty. Firms must prioritise customer care standards and demonstrate to the regulator that customers have a clear understanding of the products/services they are buying and that they achieve good outcomes from them.
Clear definitions and evidence
Under TCF, firms provided complaints data as an indicator of customer outcomes – assuming that if someone does not complain, they are content.
This will fundamentally change under the Consumer Duty, as firms will need to define ‘good outcomes’ and how they can be achieved throughout the customer journey.
In short, while TCF challenged whether a firm’s TCF framework is appropriate, the new duty asks customers to showcase whether their customer outcomes are good.
What needs to be done?
The Consumer Duty applies throughout the entire distribution chain for all retail customers. Firms must achieve compliance across four specific areas:
- Products and services must be designed and distributed to meet the needs and objectives of the customer
- Price and value must be reasonable for the specific products throughout their lifecycle
- Consumer understanding must be at the forefront of communication, equipping customers to make effective, timely and informed decisions
- Consumer support channels must be provided to assist the consumer in pursuit of their financial objectives
Key dates for compliance
- 30 April 2023 – Manufacturers must complete all reviews of existing products/services to meet the outcome rules
- 31 July 2023 – Consumer Duty rules take effect for open products/services
- 31 July 2024 – Consumer Duty rules take effect for closed products/services
How IQ-EQ can help
To aid compliance with imminent deadlines set by the FCA, we at IQ-EQ have created pragmatic guidance and support materials to help our clients prepare for implementation.
If you’d like to discuss your Consumer Duty requirements and find out more about the support available from IQ-EQ’s in-house compliance consulting and technical regulatory reporting teams, please get in touch: