Key marketing takeaways from the FCA’s latest updates on Consumer Duty

On 20th February 2024, the Financial Conduct Authority (FCA) has released a report highlighting good practices and areas for improvement observed during the initial implementation phase of the new Consumer Duty regulations. While the report was of course comprehensive (weighing in at an impressive 4300 words), we thought it was worth providing our interpretation and insight on how firms are doing as they continue their efforts to comply with the enhanced consumer protection standards.

What is Consumer Duty?

The Consumer Duty is a new set of rules and regulations introduced by the UK’s Financial Conduct Authority (FCA) that came into force in July 2023. It aims to fundamentally improve the way financial services firms treat their customers and raise standards across the industry.

The key principles of the Consumer Duty:

1. Consumer Principle: Firms must act to deliver good outcomes for retail consumers.
2. Cross-cutting Rules: Firms must act in good faith, avoid foreseeable harm to consumers, and enable and support consumers to pursue their financial objectives.
3. Specific Outcome Rules: Firms must ensure their products and services meet consumers’ needs, represent fair value, and are marketed and sold in a way that supports consumer understanding.

What does good look like?

In the most recent report, the Good Practices highlighted are:

Senior Management Engagement – The FCA observed that firms that have been actively involving their senior leadership team in the implementation process have made more significant progress. Strong leadership and accountability have been key drivers of success, and it’s not hard to see why buy-in at that level would be received positively.

Cross-Functional Collaboration – Effective coordination among various teams, such as compliance, legal, product development, and customer-facing departments, facilitates a much more holistic, and overall productive approach to meeting the Consumer Duty requirements.

Customer Understanding – Firms that have invested in robust customer research, data analysis, and responsive feedback mechanisms are generally better positioned to identify and address potential areas of consumer harm.

Product Governance – Engaging in proactive reviews of product design, pricing, and distribution channels have enabled firms to ensure their offerings meet the Consumer Duty’s fairness and suitability standards.

Where is there room for improvement?

The areas that have been highlighted as needing improvement include:

Implementation Pace – The FCA has observed varying levels of progress among firms, with some finding it difficult to adapt, who are lagging in their implementation efforts. Firms are urged to accelerate their compliance activities to meet the regulatory deadlines.

Cultural Embedment – While many firms have updated policies and procedures, there is clearly a need for deeper cultural shifts to ensure that the Consumer Duty principles are ingrained in all aspects of their operations.

Monitoring and Oversight – Ongoing monitoring and oversight mechanisms need to be strengthened to ensure continued compliance and identify emerging consumer harm risks.

Communications and Disclosures – Firms should prioritise clear and transparent communications with customers, ensuring that information is presented in a way that supports informed decision-making. This is where engaging a Marketing Automation specialist like Purple Square CX can be essential in maintaining a good level of proactive compliance.

Overall, the FCA takes great pains to emphasise that it appreciates that Consumer Duty is an ongoing process, and firms should continuously assess and improve their practices to deliver good outcomes for consumers. The important thing is to be demonstrating tangible progress in the right direction, rather than a head in the sand approach to compliance. The full report is a valuable resource for firms seeking to further align their operations with the new regulatory standards and can be found here.

If you’d like to discuss how we could proactively support you in communications, disclosure or any of the monitoring and analytics that go hand in hand with effective compliance, we’d love to hear from you.