It’s been 18 months since the Consumer Duty became the FCA’s benchmark for standards regarding consumer protection in financial services. And as firms continue to navigate this transformative era, TCC’s regulatory experts have taken stock of the frequent questions and obstacles that firms face when trying to achieve the Duty’s four outcomes.

Consumer understanding

“We want consumers to be given the information they need at the right time and presented in a way they can understand”. FCA

The consumer understanding outcome applies to all communication throughout a product or service lifecycle, whether verbal, visual or in writing no matter what stage of the customer journey.

Key questions

• How do you validate that your customers understand your products, advice or service?
• How is customer understanding factored into new product design?
• When did you last assess the reliability of your client communications?
• What steps have you taken to ensure continuous understanding of your products, not just at the point of sale?
• Are your communications overloaded with disclaimers?
• Do you think holistically beyond disclosure requirements regarding what more you can do to ensure customers are informed to make good decisions?
• How do you adapt your communications for vulnerable customers?
• Do you actively encourage customers to contact you when they need to on an ad-hoc basis?

Common obstacles

Consumers can be expected to take responsibility for their financial decisions only when firms communicate effectively and ensure a clear understanding of their products and services, including their features, risks, and the consequences of any decisions made. Hurdles to customers achieving this include:

• Customers relying on information/media as part of their advice
• Not all customers have the same level of understanding
• Issuing documentation to protect the firm rather than the customer
• Recommending products to customers that do not fully meet their needs, or they’ve not been made aware of the risks involved

Consumer support

“The support firms provide should enable consumers to realise the benefits of the products and services they buy, pursue their financial objectives and ensure that they can act in their own interests.” FCA

This comprises offering appropriate support to customers when they need it across all mediums and platforms whilst taking into account concerns about those with vulnerable characteristics.

Key questions

• Do you provide clear instructions to the customer on how to engage with the firm throughout the product/service lifecycle?
• How do you adapt your support for vulnerable customers?
• Do you deliver services in line with your ongoing service agreement?
• Are there any potential barriers a customer may experience if looking to transfer or encash investments?
• For complaints against your firm, do you provide clear guidance on the steps that this involves and look to act in the customer’s best interests when handling and resolving the complaint?
• Is the post-sale support at least as effective as the pre-sale support?
• Is the consumer support proactive or reactive? 
• How is the service ethos evident in staff attitudes and behaviours?
• How do you measure the effectiveness of your consumer support? 

Common obstacles

We have seen firms create additional engagement touchpoints with customers to prompt them to make better decisions. Obstacles that should be considered to achieving effective customer support include:  

• Customer vulnerability being identified but not considered in client-facing documentation
• Reliance on customers to identify themselves as vulnerable
• Barriers in the customer journey meaning the customer doesn’t receive the support they require

Products and services

“We want to see products and services designed to meet the needs of a clearly defined target market and then we want firms to monitor and see what happens in practice.” FCA

Products and services should be crafted to address the specific needs of a well-defined target market.

Key questions

• Are you a manufacturer or distributor or both?  
• How have you defined your target market and what are the needs, objectives and traits of those people?
• Is your target market defined to a sufficient level of granularity?
• What research have you undertaken to evidence you know your target market, and how have you documented this?
• Have you used the product manufacturer’s research to be comfortable that it aligns with your target market?
• When launching a new product/service, what factors are considered in the ‘go/no go’ decision?  
• When was the last time you undertook a product or service assessment?
• What product/service monitoring do you undertake? 
• How do you assess that a closed product remains suitable for a client?  
• How much effort has the firm gone to, to seek feedback from its clients and what changes have been made on the back of this? 
• How easy is it to switch products – are there unfair barriers to exit?

Common obstacles

The Duty extends to current products and services, encompasses any newly introduced offerings, and includes any substantial modifications a company intends to implement on existing products or services. Common problems area include: 

• Not obtaining enough feedback from a client to check the ongoing suitability of a closed product or service for their needs
• Inadequate research regarding a product or service target market
• Difficulties for customers when they want to switch or exit a product or service

Price and value

“Assertions made in fair value assessments about the costs and benefits of the product or service, or any other contextual factors, should be backed by reasonable evidence.” FCA

The price a customer pays for a product should be reasonable compared to the overall benefits that a customer gets from the product.

Key questions

• Why do you charge what you charge (consider benchmarking and research)?
• When did you last review your charging structure?
• Does your charging structure provide a level playing field for all clients?
• How do you know your products and services give your clients fair value and how do you ensure this on an ongoing basis?
• Is the service offered really being delivered and how do you know this to be true?
• In what circumstances would you consider refunding fees?
• If asked, how would you articulate the value that your products and services deliver?
• What value assessments have you undertaken recently and how have these been actioned?

Common obstacles

Certain companies have focused exclusively on market benchmarking for their pricing strategies, neglecting to evaluate the comprehensive value that consumers receive relative to the cost they incur. Frequent obstacles to achieving good outcomes include:

• Firms completing fair value assessments but making limited changes to the pricing model and relying on market benchmarking
• Light touch assessments of the costs of delivery
• Actual charges differing from those quoted in customer agreements
• Charging for services that the firm is not providing, for example, ongoing advice services
• Charging models are not transparent to customers

Consumer Duty for the long term

Firms should anticipate that the regulator can request the outcomes of their monitoring activities and board reports at any time. This information and data collected from firms and other sources will be utilised to evaluate compliance with the Duty and identify and address any detrimental practices.

It is essential for your board to take necessary actions, no matter how challenging or uncomfortable they may be. Both individually and collectively, the board must demonstrate its commitment to fulfilling its responsibilities. This may involve revisiting or questioning the current analysis, if needed.

The chairman and committee/board chairs are also tasked with ensuring that information is reviewed in a timely and relevant manner, with the appropriate quorum and management information (MI). The risk framework should consistently identify relevant MI, including key performance and risk indicators. There must also be clear evidence of actions taken, along with established empowerment and escalation levels.

It is crucial that annual board reports for the Consumer Duty not only convey positive outcomes but also address ongoing work and necessary actions.

External validation

TCC’s subject matter experts are ready to assess your Consumer Duty strategy thoroughly. Whether you require additional expertise and resources to identify and implement essential changes to your business framework or you seek independent assurance that your Consumer Duty integration is comprehensive, we are here to assist.

By identifying potential compliance gaps and highlighting areas that require your focus, you can make impactful improvements and develop a strong, sustainable strategy that addresses all aspects. Additionally, we offer advanced technology to help you monitor, review, and document outcomes effectively. Get in touch today to find out we can help your firm.