New research from the Fairbanking Foundation published
‘Our new Duty sets higher and clearer standards of consumer protection across financial services, and requires firms to put their customers’ needs first.’
(FCA Consumer Duty | FCA)
The Fairbanking Foundation welcomes the FCA’s new Consumer Duty. However, new research commissioned by us raises questions about whether financial services firms really understand and are listening to what consumers want, and whether they have the cultural bandwidth to make the Duty make a real difference.
‘Duty calls – but is industry picking up’ looks at how firms are approaching implementation, what is influencing their behaviour, how far consumer views are being taken into account and what the barriers are to implementation. We asked a representative sample of consumers for their views on the kind of action firms should be taking when there are negative outcomes, to test how useful such data might be to guide firms’ approaches.
Below is a summary of the research and key findings. The full report can be found here [Here ]. We were delighted to be working with University College London (UCL) and Warwick Business School again and this project was generously supported by FIS Global.
Consumer views
We asked a representative sample of 1,168 UK consumers what they think firms providing unsecured consumer credit should do to remedy any poor outcomes that arise for consumers from the way a financial product or service is designed and delivered. We presented consumers with eight different common scenarios of poor consumer experience/outcome. Consumers were asked to indicate the actions they most wanted to see firms take in response to the poor consumer outcomes presented.
Consumers expect to see firms act on negative outcomes to put problems caused by a financial product/service right for individual consumers and take action to prevent it happening to other consumers in future, as well as communicating to consumers individually and collectively.
Consumers clearly rated some types of action much more highly. They showed a strong preference for actions which are specific, personalised and put the problem right for the individual consumers who have experienced a negative outcome. This preference was held universally amongst consumers, regardless of socio economic groupings, or where they lived.
The survey strengthened our view that understanding consumers views and priorities should be an essential feature of firms’ Consumer Duty implementation and consumer insight should be used to drive decision making in response to monitoring that identifies poor outcomes.
Practitioner views
We interviewed eleven practitioners with responsibility for responding to the FCA’s Consumer Duty requirements working in a range of types of firms. Our interviews with practitioners were wide ranging exploring how they were approaching the implementation of the FCA’s Consumer Duty requirements. We explored the primary influences on their behaviour and the barriers they faced in implementing the Consumer Duty.
Practitioners’ approaches involved two main aspects – compliance and culture change. It was clear that compliance with the FCA’s requirements, as they understood them, was the strongest influence on action being taken. We found people had been diligently working to understand and meet the FCA’s expectations in the run up to their July 2023 deadline.
We identified a range of barriers to implementation ranging from capability; lack of opportunities to engage with colleagues; and a lack of motivation to explore issues if not specifically or explicitly required to do so by the FCA.
Some practitioners talked of lack of support from key managers as a barrier to implementing the Consumer Duty fully and some talked about the difficulty of balancing their ‘day job’ with the additional tasks required to comply with the FCA’s requirements. Dealing with the Consumer Duty seems to have been regarded by some firms as another regulatory reporting task rather than a ‘transformation’ project. Many participants mentioned a lack of motivation to conduct consumer research as part of this project due to a belief that there would not be any value gained in talking to consumers:
‘So I don’t think sometimes asking a customer …..what would a good outcome look like for you? I don’t think we’d necessarily get a great deal more learning than we’ve already got’
We also found some pessimism about the potential transformational impact of the Duty. Many we spoke to believed their firm was already compliant and there was no need to make any changes to their processes with the implication being the effort was a reporting exercise and ‘..another hoop to jump through from the regulator’ with one practitioner even suggesting that the FCA’s move to create the Consumer Duty was in order to justify their regulatory fees by creating a solution for a problem that did not exist.
Conclusions and recommendations
Although firms were all expected to meet the FCA’s 31 July 2023 date to implement the Consumer Duty we identified a range of barriers to effective implementation and a lack of research by the firms we spoke to about consumers’ priorities. This means it is far from clear to us that ‘higher and clearer standards of consumer protection across financial services’ will be delivered from this, or that firms are indeed ‘putting their customers’ needs first.’ Without effective implementation the full extent of beneficial impact for consumers the FCA seeks may not be realised.
We would like to see action so that consumer research and greater contact and engagement with consumer advocates form a much stronger part of firms’ approaches to monitoring, action planning and the FCA’s expectations.
• Senior leaders of financial services firms should set a clear expectation that consumer insight and research is an essential activity in improving the impact of the Consumer Duty.
• Practitioners in firms will need training on how to get the most from consumer research as lack of knowledge on how to use and interpret research findings was a barrier. Action is also needed within firms to promote the benefits of consumer insight and research and implementation would be improved by greater collaboration within firms and across teams which has also acted as a barrier to implementation
• In light of the very strong influence of the FCA’s expectations on firms’ behaviour the FCA should provide a clear expectation to firms that their whole approach to the Consumer Duty should be informed by research with consumers, including engagement with consumer advocates.
The FCA expects firms to use data and management information in monitoring but satisfaction and complaints data is not the same as designing products and services with full insight into customer expectations. To back that up the FCA should provide feedback to firms and promote examples of good practice so people know what they could or should be doing differently or better.
To receive further information about this project please contact info@fairbanking.org.uk and ask to be added to our mailing list.
