The Dawn of a New Consumer Duty

By the end of this month, the requirements of the new Consumer Duty come into effect for open products and services. What has the journey felt like, and what might the next 12 months bring?

By Elaine Morton, BSA Head of Legal, Conduct Risk & Financial Crime 

Does it feel like we’re in for a bright new day, or are we facing dark skies and impending gloom? Let’s hope it’s the former! By the end of this month, the requirements of the new Consumer Duty come into effect for open products and services. After that, the FCA has made no secret of its intent to focus on key areas of harm to consumers and to enforce accordingly.

Twelve months after the FCA published their final rules and guidance, we are now on the brink of the new rules taking effect. We’ve already seen two other key milestones come and go. The agreeing of implementation plans by the end of October last year, and the completion of manufacturer reviews to meet the outcomes rules by the end of April this year. The work doesn’t stop on 31st July 2023, the rules apply to closed products and services from the same date in 2024.

So what has the journey felt like, and what might the next 12 months bring? 

At the outset, we know some firms questioned whether the new duty was necessary at all. Whether they really needed to do much at all. To lift the drains. To really dig into what they do for their members, how they engage with them, and question whether the outcomes people are getting are the right ones. After all, as mutual organisations, surely the fair treatment of members is part of your DNA? Was it right to feel a bit indignant, as we know some firms did? 

Maybe not right, but perhaps understandable. Yet in spite of that, we have all heard many positive stories of the benefits you have found in really taking a step back (or diving in detail into what you do) and focussing on the outcomes that your members get, and whether the products and services you provide help achieve them. 

We asked Carolyn Thornley-Yates, Director of Mortgage Proposition at Hinkley & Rugby Building Society to share some thoughts on implementing the new duty, and the impact on the firm. Carolyn said:

“The journey has been long and at times challenging but as an exercise to really get under the bonnet of all things customer related, the time has been well spent. It’s been strange, effectively setting our own homework and then marking our own homework, but we have found that the work we completed on our customer journey and communications reviews has naturally led to the breaking down of any silos in our different customer areas, and the sharing of best practice in standardising our customer value proposition. We know that we will be more robust as a result and that our customers and staff will benefit from the provision of a better customer experience. 

We have a new mindset now as a result of the need to move from comms being ‘understandable’ to being ‘understood’, and from designing products and services which should meet customer needs to proving that this is the case, that the absence of a negative is not necessarily a positive. Our MI and oversight is significantly improved as a result.  

My advice is to ensure that this is not a tick box compliance exercise. Just carrying out the actions contained in the Final Rules and Non-Handbook Guidance will not necessarily a customer-centric organisation make. Embedding the Duty into the organisational culture, and into the hearts and minds of all staff, is the greater challenge - but one which means all the hard work carried out so far will endure, and will build that loyal base of satisfied customers which we all value deeply.” 

Just look at the benefits for the Society and their members - breaking down of silos; greater sharing of best practice; a better customer experience; improved management information; and perhaps most importantly, the cultural change that’s clearly begun as the new Duty is embedded. 

There have, as Carolyn says, been challenges along the way. Fair value assessments and how to get meaningful outcomes-focussed management information being just two. We know that many of you remain on a journey. That your management information is expected to evolve to become even more focussed on outcomes. That you are looking at innovative ways to test and try to ensure your members properly understand when you communicate with them. 

As we look ahead, the challenges will continue.

From your perspective, focus will continue on ensuring the Consumer Duty is embedded. You’ll be looking in more detail at closed products and services. Change doesn’t come free of cost to firms. External factors will come into play. We’ve already seen government willing to step in and challenge the sector in light of the cost of living crisis. They’ve given us the Mortgage Charter and the FCA have now set out very clearly in their letter to the Treasury, how they expects firms to treat savers who have been on lower interest rates for longer. Will the game have to be upped again?

Regardless of what you thought when the rules and guidance were published last July, I have no doubt that every firm will see and have seen benefits as a result of the work they have done. Both for them and for their members or customers. That can’t be a bad thing. Can it?