Since the 31st of July 2023, the Financial Conduct Authority’s (FCA) Consumer Duty Principle has been in effect, marking a significant shift in the UK financial services landscape. Initially directed towards open products and services, the regulation was designed to enhance consumer protection and ensure fair treatment across the financial industry. As the next crucial deadline of the 31st of July 2024 approaches, firms must extend these principles to closed products and services.

To be considered a closed product or service, the following criteria must be met:

  • there are existing customers who took out a contract before 31 July 2023, and
  • the product or service hasn’t been marketed or distributed (including by renewal) on or after 31 July 2023

If products do not meet the FCA’s requirements, firms have several options, for instance, reducing the product price to meet Fair Value Assessment (FVA) standards, closing the product and offering alternatives, or collaborating with advisers to find other suitable solutions.

The Consumer Duty principle encompasses three core components: the Consumer Principle, cross-cutting rules, and specific rules related to four outcomes. The Consumer Principle mandates that "a firm must act to deliver good outcomes for the retail consumers of its products” and aims to shift how firms design their products and services and provide customer service.

The cross-cutting rules provide detailed guidance on achieving these good outcomes, requiring firms to:

  • Act in good faith towards retail customers.
  • Avoid causing foreseeable harm.
  • Enable and support customers to pursue their financial objectives.

The four outcomes that firms must deliver under the Consumer Duty are:

  • Products and Services: Firms must ensure that products and services are designed to meet the needs of consumers, are targeted accordingly, and function as expected.
  • Price and Value: Firms should offer products and services that provide fair value, meaning the price paid by the customer should be reasonable compared to the benefits received.
  • Consumer Understanding: Clear, transparent, and timely communication with consumers is essential to help them make informed decisions.
  • Consumer Support: Firms need to provide effective customer support throughout the lifecycle of the product or service to facilitate positive consumer outcomes.

Implementing the new Consumer Duty regulations presents several challenges for firms managing closed products and services, including the need for comprehensive reviews of existing products, the revision of customer communication strategies, and the establishment of robust support systems. Additionally, firms must develop ongoing metrics to continually assess consumer outcomes.  

Nonetheless, these challenges bring opportunities to improve customer trust, service quality, and to gain a competitive advantage. Proactively adopting these regulations will demonstrate a customer-oriented approach, potentially improving market reputation. The focus on fair value, transparent communication, and effective support systems not only aligns with regulatory compliance, but also enhances the overall customer experience. Embracing these changes can lead to more loyal customers, fewer complaints, and improved business performance in the long term.

To effectively prepare for the Consumer Duty deadline, firms should thoroughly assess their current processes, products, and services to identify any compliance gaps, ensuring they provide fair value, adequate customer support, and clear communication. If necessary, they should implement changes to align with regulations, which may include redesigning products, adjusting prices, and enhancing support systems. Going forward, firms will need to continually monitor and review consumer outcome metrics, make necessary adjustments, and provide regular staff training and updates to maintain compliance.

Leveraging technology will be vital for complying with the new Consumer Duty regulations. Advanced technological solutions can enable firms to streamline processes, gain deeper insights into customer behaviour, and act as a bridge for better communication between parties.

For instance, our Auto Decision Platform (ADP), OpenBankVision (OBV), and DeeJoop service can facilitate a more comprehensive understanding of customers' financial behaviours. These tools enable firms to gain a holistic view of customers' spending patterns, allowing for better financial assessments and support for potentially vulnerable borrowers. By monitoring and identifying significant changes in circumstances, such as the loss of employment leading to decreased monthly income or unexpected medical expenses, lenders can guarantee timely interventions. Appropriate support for potentially vulnerable borrowers can include flexible repayment options, regular reviews and feedback, and clear signposting to external help. By implementing such measures, lenders can not only comply with FCA Consumer Duty regulations but also contribute to better financial outcomes for vulnerable borrowers, ensuring they receive the necessary support to manage their financial commitments responsibly.

To learn more about how LendingMetrics’ products can help lenders adhere to Consumer Duty regulations, listen to our Ask Us Anything Audio Series.

Firms are urged to take proactive steps in preparing for the deadline, as failure to adhere to the FCA's Consumer Duty regulations can result in significant consequences, including fines and mandated redress for customers harmed by a firm’s breach of the Duty. As the industry navigates these changes, firms must remain vigilant and committed to delivering good outcomes for their customers, ultimately benefiting both their business and the broader financial ecosystem. 

If you need additional guidance and support on complying with the new Consumer Duty regulations, or require more information about our products, please contact us.