How financial services firms can prepare for the impending FCA Consumer Duty

By Dr Robert Schumacher, Managing Partner of Bold Insight.

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:

• Good outcomes for consumers: Firms must ensure that products and services meet customers’ needs and that they are not misled or taken advantage of.
• Fair treatment: Firms must treat customers fairly, regardless of personal background or circumstances.
• Effective communication: Firms must communicate with customers clearly and understandably.
• Responsiveness to consumer concerns: Firms must be responsive to consumer concerns and complaints.

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:

• Considering the experience of vulnerable persons in the design of the product or services: In practical terms, this could include accommodations for physical impairments (e.g., colour blindness), learning/cognitive deficits (e.g., dyslexia), or a lack of capability to understand information (e.g., due to poor language skills).
• Reviewing the entire customer journey: Often in the design of an experience, only certain sections of the journey are tested and fine-tuned. But this can be misleading, as the frustration can come at many points: How hard is it to create an account? Or to login? What kind of feedback is available on success or failure? Other examples are that firms should not make it difficult to close accounts and they must provide sufficient guidance for basic customer practices.
• Positioning account risks and warnings as prominently as other key information: There should be intentional “friction” in the customer journey before making important financial decisions.

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.

• Clearly disclosing where customers may file complaints or give feedback: Many customers struggle to find how to do this. This is now no longer acceptable under the new Consumer Duty rules.

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:

• Interviews: As mentioned above, this is the most well-known and common method. It involves oneon-one in-depth interviews and discussions with customers about their experiences with a firm’s products and services.
• Observation: Observation can be conducted by watching representative customers perform typical tasks with different aspects of a company’s service offering.
• Diaries: Diaries are when customers document their journey with a service over a period of time.
• Heuristic evaluation: Heuristic evaluation involves viewing the product or service interface through user interface guidelines derived from the Duty itself. This is one of the most cost-effective and timeefficient methods to see if the customer experiences align with the Consumer Duty.
• Surveys: Surveys whereby customers are asked questions about their experiences with the service they are using.

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.