Banking
How financial services firms can prepare for the impending FCA Consumer Duty
Global Banking & Finance Review®
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The Financial Consumer Authority (FCA) Consumer Duty will revolutionise customer protection. Here’s how fintech and financial services firms can best prepare for the upcoming Duty implementation.
The Financial Consumer Authority (FCA) Consumer Duty will revolutionise customer protection. Here’s how fintech and financial services firms can best prepare for the upcoming Duty implementation.
The FCA Consumer Duty is a new set of rules that will come into effect on 31 July 2023. It sets higher and clearer standards of consumer protection across financial services. The Duty requires financial services firms to put the needs of customers first. In all aspects of business, products and services must be fair, clear and accessible.
The FCA has published guidance setting out the four key outcomes that financial services firms must focus on:
The FCA Consumer Duty will have a significant impact on financial services firms. Firms must be prepared to review products, services, processes, and culture to ensure compliance with the new rules. it will be a paradigm shift that will require significant time, money, and resources.
The Consumer Duty is replete with guidance on how the design and presentation of products should support and improve understanding. Here are but a few examples:
Otherwise, customers may not be fully aware of the risks associated with some accounts, and it is the responsibility of the designer to place those risks straightforwardly.
The question is how do firms de-risk and ensure they are aligning as best they can? One of the most important and straightforward things firms can do to get an understanding of the current state is to conduct research with customers. This can help identify areas of strength and more important areas where improvement is needed.
Customer (or user) research is, quite simply, giving representative users representative tasks and assessing their ability to discover, comprehend, and use financial products and services. It is a very straightforward process used across many industries to assess the usability and utility of all sorts of products and services. There are several ways to evaluate the customer experience. Common methods include:
Each method brings its own strengths and can be deployed for different purposes. The information gathered through user research can then be used to improve products and help to ensure that firms meet the FCA Consumer Duty requirements.
In doing this research, firms can locate areas where vulnerable people might not comprehend the fees associated with a particular service or the actual interest rate of a credit card. Firms may discover that customers can’t find out how to cancel a service.
To be clear, the FCA, in its guidance, recommends user testing to assess compliance with the Duty. Indeed, the FCA goes so far as to say that firms should conduct research to at least the same level as done during the development of sales and marketing materials.
While the FCA Consumer Duty is a significant change for financial services firms, improving how firms interact with their customers is also an opportunity. Firms can ensure trust can be built with their customers by preparing for the Duty. This is key to driving loyalty and ultimately business success. To earn this, financial services firms must understand and respect their customers and provide accessible, relevant, personalised, user-friendly experiences.
The FCA Consumer Duty is a set of regulations aimed at enhancing consumer protection in financial services, requiring firms to prioritize customer needs and ensure products are fair, clear, and accessible.
Good outcomes for consumers refer to the FCA's requirement that financial products and services must meet customer needs without misleading them or taking advantage of their circumstances.
Effective communication in financial services means providing clear, understandable information to customers about products, services, and any associated risks.
Customer research involves gathering insights from users about their experiences with financial products and services to identify strengths and areas for improvement.
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