With the Financial Conduct Authority introducing changes to its Consumer Duty regulations, this paper elucidates the implications and consequences of non-compliance.
2. As the authoritative regulatory body, the Financial Conduct Authority (FCA) assumes a pivotal role in
upholding market integrity and promoting equitable treatment of customers. Their guidelines serve as the
compass for financial institutions, steering them toward compliance, responsible practices and, more
importantly, customer satisfaction. Recently, the FCA unveiled the Consumer Duty guidelines, a
comprehensive framework designed to reinforce fair treatment and elevate consumer protection within the
financial industry. The FCA firmly mandates industries to implement these guidelines for new and existing
products by July 31, 2023, and for closed products by July 31, 2024.1
This paper aims to provide a concise yet exhaustive
guide on the fundamental concepts and implications
of the Consumer Duty guidelines while exploring the
potential consequences of non-compliance.
We distill the FCA’s extensive report into the three
key principles underpinning the Consumer Duty
guidelines and the four crucial outcomes financial
institutions must strive to achieve. This will
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Final rules and
guidelines published
27 July, 2022
Complete all reviews
necessary to meet the
outcome rules and share
with distributors
30 April, 2023
Implementation
deadline for closed
products / services
31 July, 2024
Firms to agree on their
implementation plan after
having scrutinized and
challenged the plans to
ensure they are deliverable
and robust to meet the
new standards
31 October, 2022
Implementation deadline
for new and existing
products / services that
are open to sale or
renewal
31 July, 2023
1
Financial Conduct Authority
provide business leaders with a clear framework
to make informed decisions, adapt their practices
and prioritize fair treatment of customers within
their organizations.
We view Consumer Duty guidelines not merely as
regulatory obligations but as opportunities to
differentiate the organization, foster customer
loyalty and strengthen brand reputation.
3. The Duty applies to firms interacting with both
prospective and actual customers, including
instances of a product or service denial.
The Consumer Duty applies to an entire vertical
span of functions, from high-level strategic planning
to individual customer interactions. It requires firms
to consider their customers collectively and adjust
how they engage with individual customers. This
means the firm must differentiate its approaches
on mass and individual customer levels.
The Consumer Duty extends horizontally across
the distribution chain, encompassing firms involved
in product and service origination, distribution and
post-sale activities. This includes all firms that
determine or have a material influence over retail
customer outcomes. For instance, it pertains to
companies designing or operating retail products or
services, managing distribution processes, creating
and approving communications for retail customers,
and providing customer support. Firms should
consider the Duty as part of their due diligence when
working with other entities in the distribution chain.
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Domain
Consumer Credit
Deposit-Taking2
Insurance3
Investment4
Mortgages5
Payment Services
Out of Scope
--------------
Commercial / Large Business
Customers, Large Charities, etc.
Reinsurance, Large Risk Sold to
Commercial Customers, Risk Outside
the UK, Group Insurance Policies
Professional Clients
Unregulated Contracts, e.g., Buy-to-Let
Contracts, Commercial Lending, etc.
Commercial / Large Business
Customers, Large Charities, etc.
In Scope
All Regulated Credit-related Activities
Individual Consumers,
Micro-Enterprises and Small Charities
Retail Customers
Retail Customers
All Regulated Mortgage Contracts
Individual Consumers,
Micro-Enterprises and Small Charities
The Consumer Duty guidelines have a broad scope, applying to the regulated and ancillary activities of all
firms authorized under the Financial Services and Markets Act 2000 (FSMA), the Payment Services
Regulations 2017 (PSRs) and the Electronic Money Regulations 2011 (EMRs) concerning products and
services for both prospective and actual retail customers.
The Duty specifically encompasses products and services offered to "retail customers" across various financial
sectors, including Consumer Credit, Deposit-Taking, Insurance, Investment, Mortgage and Payment Services.
I. THE FAR-REACHING IMPACT
2
Banking Conduct of Business Sourcebook
3
Insurance Conduct of Business Sourcebook
4
Conduct of Business Sourcebook
5
Mortgage Conduct Business Sourcebook
It is important to note that companies are
responsible for their actions, unless regulatory
obligations or contractual agreements stipulate
otherwise. Additionally, they are not obliged to
supervise the activities of other firms within the
distribution chain. The Duty also encompasses
firms in the wholesale market that can influence
retail customer outcomes, whether through
determination or significant influence, even in the
absence of a direct relationship with customers.
The regulatory remit of the FCA covers only firms
conducting regulated activities within the UK,
making them subject to the Duty. Even in cases
where the distribution chain involves firms in
Gibraltar selling products or services to UK retail
customers, the Duty remains applicable to those
firms, irrespective of whether they have an
establishment in the UK or operate on a
cross-border basis. The Duty also extends to firms
within the temporary permissions regime
following the UK's withdrawal from the EU.
4. The Consumer Duty guidelines introduced by the FCA signify a notable shift from a rule-based regulatory
approach to an outcome-based one, emphasizing the importance of achieving positive customer outcomes.
The guidelines will replace two fundamental FCA principles for regulated businesses while still retaining
their essence:
The central consumer principle incorporated in the Consumer Duty guidelines states that a business "must
act to deliver good outcomes for the retail consumers of its products." This principle sets a higher standard
beyond merely treating customers fairly, aiming to ensure that customers receive positive outcomes from
their interactions with financial institutions.
Supporting the central consumer principle, three "cross-cutting" rules outline how businesses should act to
deliver good outcomes for customers:
• Principle 6: A firm must pay due regard to the interests of its customers and treat them fairly.
• Principle 7: A firm must pay due regard to the information needs of its clients and communicate
information to them in a way that is clear, fair and not misleading.
II. KEY PRINCIPLES & OUTCOMES
Act in good faith
toward retail
customers
Avoid foreseeable
harm to retail
customers
Enable and support
retail customers in
pursuing their
financial objectives
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1. 2. 3.
5. 04
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To support compliance with the guidelines, financial institutions must adopt the underlying principles,
including leadership and accountability, staff incentives and capabilities, systems and controls, product and
service design and governance, communications, and monitoring and remediation.
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Financial institutions
must provide customers
with clear, transparent
and timely
communications,
avoiding misleading
statements or omissions
and presenting
information in an easily
understandable manner.
Moreover, they must
divulge pivotal
particulars essential for
customers to make
informed decisions.
Clear
Communications
Financial institutions
must offer products
and services designed
to fulfill the needs of
their target customers,
considering factors
such as suitability,
affordability and
prevention of customer
harm. Regular reviews
and assessments of
product performance
and suitability are also
expected.
Suitable Products
and Services
The guidelines emphasize
the importance of a
smooth and transparent
customer journey,
ensuring fair treatment at
every stage, including
customer onboarding,
ongoing service provision,
complaint handling and
feedback processes.
Prioritizing customer
experience entails an
unwavering commitment
to eliminating potential
barriers or biases.
Customer
Journey
Financial institutions
should deliver
products and
services that offer
fair value to
customers, meeting
their expectations
and providing
competitive prices
and equitable terms.
Price
and Value
There are four key outcomes of the Consumer Duty:
1. 2. 3. 4.
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Compliance with the Consumer Duty entails a proactive approach by firms to assess, test, understand and
provide evidence of the outcomes their customers are experiencing. Firms must identify poor outcomes
and take appropriate actions to rectify their underlying causes. Moreover, firms must continuously learn
from their customers' real-world outcomes, fostering a culture of focus and awareness. Throughout the
regulatory lifecycle, firms can anticipate requests to demonstrate how their business models, actions taken
and organizational culture align with delivering positive customer outcomes. Furthermore, a firm's
governing body should review and approve the firm's assessment of delivering good outcomes for
customers consistent with the Duty, agreeing on necessary actions at least annually.
To ensure the delivery of good outcomes for customers, firms are expected to take decisive action when
identifying problems tailored to various factors at play. Potential interventions may involve:
When questioned, firms should be capable of
explaining their rationale to determine the most
suitable intervention. They must demonstrate how
these actions have resulted in positive outcomes
and, if necessary, outline additional measures
taken to address any persisting issues.
To monitor customer outcomes, firms must collect
relevant information and be prepared to furnish
evidence of their monitoring and assessment
processes upon request. Monitoring activities will
vary, with some areas requiring comprehensive
monitoring across all customers, such as product
usage. In contrast, others may be conducted
through risk-based samples, such as distributional
III. COMPLIANCE AND MONITORING
EXPECTATIONS
analysis or file reviews. Instances of data that can
be collected include business persistence, product
/ pricing and fee distribution, behavioral insights,
training and competence records, file reviews,
customer feedback, complaint analysis, outcomes
of regular testing and monitoring, feedback from
the distribution chain, compliance reports,
customer experience research, staff feedback and
external data sources on consumer outcomes.
Effective monitoring and evaluation by firms play
a crucial role in ensuring that consumers, including
those with characteristics of vulnerability and
protected characteristics under the Equality Act
2010, experience good outcomes on par with
other customers.
Adapting
Amending or
discontinuing
products or
services
Refining communication
methods for improved
clarity and providing
appropriate redressal in
cases of customer harm
Adjusting design,
fees or charges
Modifying
operational
processes
Enhancing
customer
support
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• Customer Segmentation allows organizations to categorize customers based on their unique needs,
interests and risk profiles. This empowers businesses to tailor their products and services to meet the
precise requirements of each customer group.
• Customer Profiling through analytics creates comprehensive profiles encompassing customers' financial
situations, lifestyles and goals. This enables businesses to identify potential risks and provide appropriate
advice and support to ensure customer well-being.
• Risk Assessment leverages analytics to evaluate the likelihood of customers experiencing financial harm.
By proactively identifying and addressing potential risks, companies can mitigate adverse outcomes and
safeguard customer interests.
• Complaint Management aided by social media analytics allows businesses to track both direct customer
complaints and indirect expressions of dissatisfaction, providing a comprehensive understanding of
customer concerns and allowing for improvement of the overall customer experience.
• Product Development fueled by analytics leverages insights derived from data to align product
enhancements to customer needs. Organizations can offer tailored solutions that prioritize customer
satisfaction and compliance in line with the Consumer Duty guidelines.
The rapidly-approaching compliance timelines make it imperative for business leaders to assess their
readiness and take immediate action to implement these guidelines effectively. To navigate this landscape
successfully, business leaders should focus on understanding their customers, fine-tuning products to
prevent direct or indirect harm, and proactively addressing customer displeasures.
Analytics-driven insights emerge as a crucial tool in addressing these issues and can provide immediate
impact concerning the Consumer Duty within these functions:
In conclusion, embracing the Consumer Duty guidelines is imperative for both businesses and customers alike,
paving the way for enhanced services and long-term compliance for sustainable growth. Taking immediate
action and seeking expert support will enable a future where fair treatment and customer satisfaction are at the
heart of every financial interaction.
To learn how WNS can expedite your journey toward Consumer Duty compliance with its analytical capabilities
and deep industry expertise, talk to our experts.
IV. THE NEED FOR STRATEGIC PARTNERSHIPS