Consumer Duty: The Next Stage in the Evolution of Financial Services Regulation

UK financial services regulation has evolved over the past sixteen years or so, as regulators have sought to provide positive outcomes for consumers and reduce the risk of harm in the market.

The introduction of Treating Customers Fairly (TCF) in 2006 was a seminal moment and set the direction of travel for what has come since.

Regulatory changes in recent years, including the Insurance Distribution Directive (IDD), the Senior Managers and Certification Regime (SM&CR), Product Oversight and Governance and, more recently, new guidance on the fair treatment of vulnerable customers, have seen the FCA encourage and, where relevant, enforce, positive practices and behaviours that seek to avoid consumer detriment in the financial services market.

The latest stage in this evolution is the Consumer Duty, which is expected to be finalised and published at the end of this month. Firms will have until April 2023 to implement the required reforms.

FCA Chief Executive Nikhil Rathi, in a recent speech at the Peterson Institute for International Economics in Washington DC, noted that Consumer Duty will ‘break new ground’ by ensuring ‘all firms take account of the actual impact of their services and product suitability on the consumer.’

The Consumer Duty is indeed a far-reaching piece of regulation, which covers almost all areas where firms and consumers interact. It is informed by understandings of financial psychology, particularly around consumer behavioural biases, and how this knowledge can be used by firms either to the benefit or exploit consumers.

Consumer Duty introduces clearer and higher standards on the culture and conduct of regulated firms. It expects all firms to act in a way that meets the FCA’s expectations on the four outcomes of the Consumer Duty, namely:

• Products and services
• Price and value
• Consumer understanding
• Consumer support

Fundamentally, the FCA want to see customers being sold the right product, at the right price, in a way which is easy to understand, whilst receiving appropriate standards of customer service. RWA Insight will be providing a series of articles in the coming weeks and months that will look at each of these areas in more detail.

These outcomes should not seem alien to general insurance firms. If your firm has been adhering to and embracing the regulatory reforms of recent years, it should be well-placed to implement the Consumer Duty.

Consumer Duty, however, takes this consumer-focused regulation to the next level. Firms should now actively put consumers’ interests at the heart of their business culture. The products, services, communications, and customer engagement they provide should foster trust and confidence in the financial services market and equip consumers with the information they need to make informed financial decisions.

RWA is offering a Consumer Duty Gap Analysis for firms ahead of the implementation of the new rules. If you want to find out more, please contact RWA at helpdesk@rwagroup.co.uk or call 01604 709509.