Outcomes-focused regulation ‘consumer duty’

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By the time firms read this article, there will be roughly one month left to respond to the FCA CP 21-13.  All regulated firms, providing products and services to retail clients should respond as the paper is a ‘watershed’ moment for outcomes focused regulation.  Ever since the FCA took over from the FSA we have seen a constant ratcheting up of requirement for firms to deliver better consumer outcomes and all initiatives focus on the needs of the consumer.  Many consumerists hope that the ‘Consumer Duty’ requirements in the new proposals will ‘game change’ consumers relationships with firms.

Let’s not forget of the 11 Statements of Principle, 9 of them relate to outcomes.  Further TCF provides 6 customer outcomes, all designed to ensure the fair treatment of customers.  The Senior Manager and Certification Regime requires managers and individuals to take greater responsibility and accountability with the objective of reducing harm to consumers and strengthen market integrity.

But clearly the FCA believes that these developments have not driven firms to a place where further intervention is not required. 

But clearly the FCA believes that these developments have not driven firms to a place where further intervention is not required.  As the FCA says in the CP, “consumers don’t always get the products and services that meet their needs or the outcomes they might reasonably expect”, “Consumers’ ability to make good decisions can be impaired by various factors. These include their weaker bargaining position, asymmetries of information, lack of understanding or behavioural biases” and “firms may not always compete effectively to drive up quality and bring down costs in consumers’ favour.”  My involvement with FSA/FCA regulation goes back to M-Day (2004) and these matters were ‘on the table’ then.  It is not surprising then, that critics suggest this CP is a decade too late.  None of this is new, I recall a book from the 1980’s with the catchy title, “Asymmetric Information, Bank Lending and Implicit Contracts: A Stylized Model of Customer Relationships”.  Even earlier information asymmetry was a classic cause of unfair outcomes identified in the 1974 Consumer Credit Act, but the harm caused by “asymmetries of information” is still a regulatory focus.

The four proposed outcomes cover the key elements of a firm/customer relationship and focus on communications, products and services, customer service and price and value.

  • In respect of communications the FCA wants firms to communicate in a way that enables consumers to make informed decisions. It wants consumers to receive the information they need, at the right time, and in a way that the consumer can understand.  I would be worried if firms are not already doing this, but a refocus on ‘outcomes’ is now required.
  • A strengthened ‘fit for purpose’ requirement in respect of products and services will see a strengthening of the Product Sourcebook (PROD).
  • Complying with the new customer service requirement may be a challenge for some firms. Some firms will simply need a new mind set others will be required to make a significant cultural shift.  The FCA sentence, “it should be at least as easy to exit a product or service as it is to purchase it in the first place” sends a clear expectation message to firms.
  • The price and value outcome is the one that has received most press coverage. While stopping short of consulting on new market interventions, such as price caps or other price interventions there is a clear warning that such moves could be considered if firms fail to give greater consideration to the price and the role it plays in relation to the fair value of products and services.

So there is a lot to digest in a month, https://www.fca.org.uk/publication/consultation/cp21-13.pdf, but it is a ‘must read document.  Even if firms have no intention of responding to the CP, the earlier firms can plan any structural systems and procedural changes the better they will adapt to the new consumer duty.

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Partner - Baxters Business Consultants - a business consultancy undertaking marketing, training, freelance journalism and expert witness services to the residential mortgage lending, building society and financial service industry (April 1993 to date) - www.baxtersbc.co.uk.

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