In what has been termed a ‘paradigm shift’ for financial services, the FCA’s Consumer Duty came into effect on the 31st of July.
Originating from Financial Conduct Authority (FCA) consultations in 2021, the Consumer Duty standard aims to provide financial service protection for consumers in the UK.
Aiming to deliver a higher standard of customer care and protection, the new Consumer Principle requires firms to ‘act to deliver good outcomes for retail customers’. The City regulator hopes to implement a higher standard of customer protection, allowing customers to make informed financial decisions.
In the past, accessing support and understanding financial service information has been difficult for customers, meaning they were ill-equipped and uninformed to make decisions. The new standard provides support for customer outcomes, customer understanding and customer support.
Though Consumer Duty will not be applied to ‘closed books’ until 2024, and the first board attestation is not expected until 31 July 2024, there have been concerns that the standard will create an unnecessary burden for smaller firms, less equipped to mitigate the rules.
Accounting firm PwC has summarised the standard into 5 main points:
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- Defining and monitoring good customer outcomes: avoiding foreseeable harm through reviewing data and identifying concerns is now key.
- Scrutiny over subjective judgments: firms must define FCA concepts such as ‘foreseeable harm’ and ‘fair value,’ which were previously subjective.
- Data: firms should use data to evidence outcomes for consumers to improve customer insight.
- Accountability: firms must provide staff with training to ensure they understand that customers’ interests are now central under the new standard.
- Supporting and empowering consumers: clear and concise communication is needed to support customers and make judgements in their best interests.
Leasing sector and Consumer Duty
On the new standard, Shashi Maharaj, director of legal and membership at the BVRLA, the UK vehicle rental, leasing and fleet management trade body, said:
“The Consumer Duty marks a step change in how regulated firms need to conduct their business. Its impact on the leasing sector can’t be understated. All levels of the supply chain are either directly responsible for meeting Consumer Duty requirements or work with partners that are.
“Ignoring the new duty is not an option for regulated firms working in the leasing sector. We are seeing first-hand the positive changes that are being made across the sector. Our membership contains leasing companies, leasing brokers and funders, with each being impacted by the new duty in different ways.
“The outcomes-focused nature of the new duty is bringing in new approaches for businesses to ensure that they provide good customer outcomes. Customer contracts, complaints processes, and marketing materials all need to be reviewed or reworked to meet the new requirements. Critically, the onus is not simply on a firm to make those changes but be able to evidence it too.
“For some, the changes required are monumental. We have been working tirelessly with our members to support them in their efforts to get ready for Consumer Duty and ensure compliance. Key steps taken by our members have included appointing a Consumer Duty champion internally to oversee progress, as well as putting managerial and customer-facing staff through appropriate training programmes.
“There is also a wider emphasis on how to deal with vulnerable customers appropriately, alongside making adequate fair value assessments of products and services. Changes brought on by Consumer Duty are far-reaching and centred around delivering positive customer outcomes.”
Simon Goldie, director of business finance at the Finance & Leasing Association (FLA), said: “Our members have invested a significant amount of time and effort preparing for the Duty, and the FLA has supported them with conferences, workshops and training courses, as well as guidance for asset finance providers.
“Every sector touched by the Consumer Duty will be significantly impacted because it has been designed to be a far-reaching piece of regulation. Therefore, firms need to have robust processes in place at a senior level for monitoring compliance with the Duty and be able to evidence this.”