The FCA's new Consumer Duty: How should financial services respond?by
The Financial Conduct Authority's new Consumer Duty will lead to a major shift in financial services, and how firms should provide consumers with finance products. In the first of three posts on how retail finance firms should respond, Graham Hill examines their options.
The FCA has published a new Consumer Duty setting out the standard of care retail finance firms must provide consumers. Firms only have a year to comply with its complicated requirements.
In a nutshell…
In July this year, after a period of consultation with the retail finance industry and interested parties, the FCA published its Finalised Guidance on the new Consumer Duty (here is a link to the document and the consultation). The Guidance describes the standard of care that retail finance firms should provide consumers.
Through the Guidance, the FCA describes how firms should provide consumers with finance products, operate their go-to-market processes and manage problems, such that harms are minimised, in a reasonable way.
Retail finance firms have until July 2023 to comply with its requirements.
Retail finance firms have a number of options when it comes to responding to the 121 pages of principles, rules and outcomes described in the new Consumer Duty.
At one extreme, firms could take a RETRENCHMENT approach.
In this approach, they confirm that the changes they already made in response to e.g. the FCA’s earlier ‘Guidance for firms on the fair treatment of vulnerable consumers' and the 'Senior Managers and Certification Regime', are adequate to meet the new Consumer Duty.
Although I don’t think this is likely, there may be firms that believe they already meet the requirements of the new Consumer Duty.
At the other extreme, firms could take a RENEWAL approach.
In this approach, they carry out a root and branch review of their current products from the consumer's perspective, improve any products that likely do not meet the new Consumer Duty and create new products specifically designed to meet consumers needs and expectations aligned with the new Consumer Duty.
Although some firms may take this approach, the cost and complexity of applying consumer-driven innovation mean that it is not all that likely.
Between the two extremes, firms could take a REVIEW approach.
In this approach, they review their current products, go-to-market processes and problem solving from a regulatory perspective and improve them where they likely do not meet the new Consumer Duty.
I believe this is much more likely than the other two options, although I expect some firms to leave it until late before responding and to struggle to meet the deadline.
Three key takeaways…
- If you are a retail finance firm you need to respond to the FCA’s new Consumer Duty by July 2023. Read the Finalised Guidance and related documents to inform yourself about what is expected.
- Identify which of the three options – Retrenchment, Renewal or Review – or a hybrid, is the right approach for you.
- Pull together a cross-functional team to start planning your response. Unless you are taking a Retrenchment approach, make sure a business-facing function is leading it, not Compliance or Legal.
In the next post, I will look at the seven steps financial services firms should take to review and respond to the FCA’s new Consumer Duty.
Other articles in this series:
- The FCA's new Consumer Duty: What products & processes must be reviewed?
Graham Hill has been a Management Consultant, Interim and Director for over 30 blue-chip companies, in 15 different countries, over the past 30 years. Most of his work has involved building complex service systems, directing their implementation and managing the resulting organisational transformation. He is an acknowledged SME in customer...