The new Consumer Duty – All change

With less than a year to go until the FCA’s new Consumer Duty comes into force, it’s especially important to focus on digital channels and look at the growing need for reliable tools to capture, curate and record customers’ digital sessions ‘as they happen’ in the financial services industry. Not only does this enable better customer support and more timely intervention but, where needed, it also serves as a valuable evidence base that firms can use to prove their full compliance with the new rules.

Clearly, this is important for any financial services provider selling regulated retail products into the UK market. However, the pebble the FCA cast into the global regulatory pool has the potential to create ripples. Indeed, the new conduct benchmark set by the UK regulator may galvanize authorities in other jurisdictions, many of whom are making similar moves towards an outcomes-based approach to regulation, to adopt a similar approach.

This blog lays out the scope and scale of change that the FCA’s new Consumer Duty implies and outlines the tools firms will need to ensure they are fully compliant on day one.

Introducing the new Consumer Duty

The specifics of the FCA’s new Consumer Duty, which will be published at the end of July 2022 and enter force in April 2023, consists of three core elements:

1. A governing consumer principle stating that firms must act to provide good outcomes for their retail customers.
2. A set of cross cutting rules that focus on a firm’s responsibility to ensure customers avoid foreseeable harms and are enabled to pursue their financial objectives.
3. A set of four relationship outcomes, dealing with customer communication, products and services, customer service and fair value, that together set clear expectations for firms’ cultures and behaviors.

This new dovetailed approach requires firms to put themselves squarely in the shoes of their customers so they will better understand the experiences they receive and be better placed to support and empower them to receive the good financial outcomes mandated by the new rules. Going beyond the existing TCF regime, the new Consumer Duty therefore is profound in its reach, touching on product design, customer communication, the format and intensity of customer service provided and the value their products represent. 

Understanding and addressing the digital impact of the rules

The new Consumer Duty aims to ensure that consumers can choose from products and services that meet their individual needs, increasing the likelihood they will obtain the best financial outcomes. In a digital context, it is therefore essential that firms deliver the information customers need to make the best decisions when and where it is needed. Digital channels are often the first port of call for customers seeking information on financial products, so the websites and apps operated by firms must be fit for purpose – easy to navigate, clearly signposted and containing the right information in the right formats. Importantly, this includes the portals customers use to escalate issues and complain to their providers.

Since no solution is perfect, firms must also be able to spot and address issues as they arise, employing root cause analysis to ensure problems are identified and rectified swiftly. By continuously monitoring digital behavior, firms can better meet their regulatory obligations, identifying signs of customer confusion or distress in real-time. This might include frantic clicking, for example, which could be a tell-tale sign of customer frustration. Likewise, being able to spot important terms and conditions being scrolled through at speed can help protect vulnerable customers from arriving at bad outcomes by addressing a foreseeable harm.

A technology-led approach would help leading firms capture and analyze more of these triggers, allowing them to interpose themselves in the customer journey where needed. Likewise, structural flaws could be addressed in a more timely manner, building compliance resilience into the system. In the case of a complaint, properly equipped firms will also feel more confident in their ability to present compelling evidence to the regulator, should they need to defend a claim. A fully recorded session of the customer’s digital interactions, not just the times at which they logged on and off their websites, will give firms the evidence that the customer was provided with all the relevant information and a valuable resource for making further improvements to the customer journey to prevent recurrence.

The global context

In championing the customer agenda with their new Consumer Duty, the FCA has set an example to other global regulators, many of whom are already moving in a similar, outcomes-based direction.

In product design, we note the recent work of the Consumer Financial Protection Bureau (CFPB) in the US concerning the Buy Now Pay Later (BNPL) market. A recently opened investigation is seeking information from five leading players – including Klarna and PayPal – on the risks and benefits of their products, providing a good example of a regulator intervening to avoid bad outcomes crystallizing for customers who run up unserviceable levels of debt. It also underlines the benefit of recording customer sessions where (in this example) the customer is checking out and accepts BNPL as the method of payment. If all the requisite disclosures and warnings were provided at checkout, recording the actual session proves that the customer should have been fully informed.

Elsewhere, both the CFPB and the Australian Securities and Investments Commission (ASIC) have stated their belief in the importance of monitoring customer behavior as a way of informing better regulation. As Peter Kell, then Deputy Chairman of ASIC, explained in 2016, an enhanced behavior understanding helps the regulator to “significantly improve market and consumer outcomes.” Describing ASIC as a “behavioral regulator,” he also laid out the many ways in which behavioral economics were being used to inform policy, citing key learnings from the UK (source).

These are only two of many examples where we see regulators leveraging customer behaviors to achieve better outcomes for those served by the firms they regulate. Indeed, regardless of the extent to which the new Consumer Duty is inspiring change in other jurisdictions, what is certainly true is that regulators around the world are watching on with interest. In these and other ways, moving forward, we anticipate much greater regulatory convergence around the consumer protection agenda.

The bottom line

Against this backdrop, any firm selling retail financial services products, no matter where they are located, may soon find themselves needing to demonstrate their commitment to helping customers achieve the best financial outcomes. And so, moving forward, planning done now, especially in the context of these learnings from the UK market, will pay off down the line for all leading providers, as regulators of all stripes move inexorably towards a more outcomes-based future.

Meet your conduct compliance obligations with Glassbox

It can be difficult to understand what your customers are doing on-line and be able to capture, support and monitor real time events. The new Consumer Duty requires firms to be proactive and utilize digital tools and behavioral insights to monitor activity, alert you to potential signs of struggle and to test outcomes to ensure the customer does not suffer harm. Glassbox is at the forefront of this technological advancement and captures every interaction on web and mobile. It produces automated alerts in real time for individual sessions that may require further review or intervention. The solution enables firms to analyze complaints, resolve disputes and investigate fraud as well as supporting vulnerable customers. With Glassbox, you can rest assured that you have forensic records to evidence what happened in order to meet your conduct compliance obligations and monitor all activity to keep your customers protected.

Join us for our upcoming webinar about Consumer Duty, in partnership with UK Finance, on June 23 at 2:00 p.m. BST. Register here.