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What is Consumer Duty?

The Financial Conduct Authority Consumer Duty is a new regulation that comes into effect in the UK on 31st July 2023. It’s purpose is to enhance consumer protection by improving the standards of conduct for businesses operating in the financial sector. It requires firms to act to deliver good outcomes for retail customers.

The regulation is based on three core principles:

1. Consumers should receive products and services that meet their needs and are marketed in a way that is clear, fair, and not misleading.

2. Consumers should not face unreasonable barriers when they try to access financial products and services or exercise their rights.

3. Consumers should receive products and services that are designed to meet their needs throughout their lifetime and are delivered fairly, taking account of their changing circumstances.

The rules require businesses to consider the needs, characteristics and objectives of their customers – including those with characteristics of vulnerability and how they behave, at every stage of the customer journey. As well as acting to deliver good customer outcomes, firms will need to understand and evidence whether those outcomes are being met.

Rules relating to four outcomes within the Duty that represent key elements of the business‑consumer relationship which are key in helping to drive good outcomes for customers. These outcomes relate to:
– products and services
– price and value
– consumer understanding
– consumer support

The rules that relate to the four outcomes require businesses to:

• put consumers at the heart of their business and focus on delivering good outcomes for customers

• provide products and services that are designed to meet customers’ needs, that they know provide fair value, that help customers achieve their financial objectives and which do not cause them harm

• communicate and engage with customers so that they can make effective, timely and properly informed decisions about financial products and services and can take responsibility for their actions and decisions

• not seek to exploit customers’ behavioural biases, lack of knowledge or characteristics of vulnerability

• support their customers in realising the benefits of the products and services they buy and acting in their interests without unreasonable barriers

• consistently consider the needs of their customers, and how they behave, at every stage of the product/service lifecycle

• continuously learn from their growing focus and awareness of real customer outcomes

• ensure that the interests of their customers are central to their culture and purpose and embedded throughout the organisation

• monitor and regularly review the outcomes that their customers are experiencing in practice and take action to address any risks to good customer outcomes

• ensure that their board or equivalent governing body takes full responsibility for ensuring that the Duty is properly embedded within the firm, and senior managers are accountable for the outcomes their customers are experiencing, in line with their accountability under the Senior Managers and Certification Regime (SM&CR)

Under the Duty, businesses need to assess and evidence the extent to which and how they are acting to deliver good outcomes and address any issues they identify.  Quality Assurance teams will play a key role in assessing and gathering the evidence. The Duty will require a significant shift in both culture and behaviour by many businesses. The expectation from the FCA is the focus on acting to deliver good outcomes to be at the centre of firms’ strategy and business objectives. Once the Duty is in force, the FCA will use a range of tools to assess firms’ compliance. They will also monitor how the market may change following implementation of the rules.