FCA updates on Consumer Duty implementation

The FCA has published the findings of its review of firms’ Consumer Duty implementation. The findings are split into six key areas and include examples of good practice and areas for improvement.

Good practice – firms have:

• altered their company purpose to highlight to staff the importance of focussing on customer outcomes;
• ensured responsibility for good customer outcomes is understood and owned by all aspects of the business, not just risk and compliance functions
• considered customer vulnerability as part of product and service design. Some firms have developed new ways of supporting elderly customers, eg by using selfies for ID verification to confirm they are not being scammed;
• encouraged customer service staff to take more time to provide a bespoke service for vulnerable customers by turning off their productivity targets when dealing with such customers;
• introduced ’11 golden rules’ for designing new products and services which are linked to the Duty requirements;
• simplified their product offering so there are no products with similar or overlapping features where this benefits customers;
• improved the value proposition by reducing consumer costs, eg reducing the rate of interest paid on certain credit products and/or for certain types of customers;
• capped fees for long-standing clients and have waived fees entirely where they could not justify the product’s cost;
• worked with experts to improve firms’ communications and increase customer understanding, eg by simplifying the language used. One firm introduced a ‘jargon buster’ library across its business to help simplify documents;
• redesigned customer journeys to better support understanding. One insurer now highlights policy exclusions on its website before customers start their application, so it is clear upfront what is not covered;
• introduced positive interventions into customer journeys. One consumer credit firm now directs web customers to speak with an agent to receive tailored support where there are indications that the customer may struggle to keep up with repayments;
• implemented processes to monitor the support they provide and identify areas for improvement, eg one firm launched an online portal where customers can provide feedback.

Areas for improvement:

• firms should be proactive in identifying and addressing issues and risks of harm rather than waiting to see if the FCA will intervene;
• firms should think seriously about the data and MI they need to understand customer outcomes, rather than repackaging existing data;
• in the investment market, support for vulnerable customers has not been prioritised if considered at all. The FCA’s recent wealth survey showed that 49% of portfolio managers and 69% of stockbrokers identified no vulnerable customers among their customer base;
• firms should not automatically assess all consumers over a certain age as vulnerable but should tailor the support they provide rather than taking a generalised approach;
• firms must share information effectively across supply chains – manufacturers need to inform distributors of the product characteristics, target market and value. Distributors also need to provide relevant information to support manufacturers in their product reviews;
• firms must ensure that their distribution strategies are driving good outcomes for customers;
• firms should not rely solely on an assessment of similar offerings in the market to determine the value of a product. They must also consider the nature of the product or service, the benefits it provides, any limitations and the expected total price customers will pay;
• firms must be able to explain their remuneration practices and how they are proportionate to the work they do;
• firms must not undermine customers’ trust by pushing products that are too high risk or complex for them;
• firms must be clear with customers about what charges apply when;
• some firms have not trained staff well enough in terms of having complex conversations with customers;
• firms should not use practices akin to ‘gamification’ on online trading platform applications which can encourage risky short-term trading.

Separately, Sheldon Mills (FCA Executive Director of Consumers & Competition) has given a speech on the progress made towards Consumer Duty implementation so far, and also what firms need to be doing to meet the implementation deadline for closed products on 31 July 2024.

Finally, the FCA has also published the results of its Autumn 2023 survey of firms’ Consumer Duty implementation. It was particularly interested to understand what smaller firms (<50 employees) had done in terms of implementation and whether firms had made changes to their consumer contracts and fin proms. The results show that improvements have been made since the previous survey (in Spring 2023).

The FCA will continue to check whether firms are delivering good customer outcomes and will take action where it identifies shortcomings, including:

• thematic work across multiple retail markets, followed by sector specific interventions where necessary;
• multi-firm work in sectors which experience common themes and risks;
• interventions where the FCA has concerns about the approach individual firms have taken to implementation.