Consumer Duty—beyond compliance

The Consumer Duty, the Financial Conduct Authority’s (FCA’s) flagship regulation, came into force for on-sale products on 31 July 2023, setting a higher standard of consumer protection in financial services.

The regulator now considers it a “golden thread” running through all its activities and, in December 2023, stated it will intervene where there are compliance concerns. Egregious noncompliance will lead to financial penalties or public censure.

With the Day 2 deadline (31 July 2024) looming, financial services firms are reviewing lessons learned from their initial implementations and trying to find better approaches. They’re looking for ways to ensure compliance, avoid poor customer outcomes and potential penalties, and drive superior customer experience, good governance, and efficient operations—and, ultimately, competitive advantage.

Challenging Day 2 requirements

Many firms are struggling to establish efficient compliance and reporting, as well as using the Duty as an impetus to become more customer-centric.

In December 2023, the FCA reviewed progress towards Day 2 requirements: closed products review and Annual Board Report development. The FCA revealed that nearly 40% of firms don’t feel they're on track to become compliant. This is especially true for retail banks, some of which find the second deadline even more challenging given their back book complexity.

It’s also worth noting that the Duty is a regulatory reflection of the struggles of UK consumers. It’s being used as a catalyst to drive better customer outcomes in the current macroeconomic environment. Although inflation has started to taper off, the cost of living has remained high. People need support from their financial services providers more than ever.

A year ago, a quarter of all UK adults had low financial resilience, and more than 50% of UK adults claimed they were stressed due to the rising cost of living. Consumer confidence was still low as recently as December 2023, with spending not keeping up with inflation. Compliance with the Duty is about doing the right thing for customers, not a tick box exercise.

How to rise to the challenge

I echo some of the advice the FCA has recently provided to ensure Day 2 compliance. It’s important to begin by identifying the greatest areas of harm and the gaps to remediate them for closed products. Once that’s done, firms will be able to prioritise products closed for delivering poor outcomes.

When it comes to the requirement to develop an Annual Board Report, keep in mind that it’s not just an attestation, but rather a piece of internal governance that should empower the board to drive the organisation in the right direction.

Steps to embrace the Consumer Duty

To move beyond mere compliance—and to pivot towards embedding the Duty in the organisation’s culture and ways of working—firms should set up governance centered on continuous reporting and driving immediate action. Solving the customer data challenge is the first step.

Start by developing a (near) real-time, multi-layer, board-to-operations dashboard with drill-down capabilities across the four pillars of the Duty. Next, ensure that the dashboard leads directly into digital workflows driving immediate action. This will enable the firm to close the customer feedback loop and promptly identify—and ultimately predict—emerging poor customer outcome trends.

Using the right data and technology is necessary but not sufficient. It’s essential that any dashboard and digital workflow are truly embedded into the firm’s governance and operations. This will establish an operating model centered on the Duty and help provide continuous assurance that the organisation is driving the right customer outcomes.

Finally, as the system is operationalised and iteratively enhanced, it will enable firms to use it to develop new and more personalised propositions and customer communications. By proactively implementing these steps, financial services firms will pave the way towards becoming more customer-centric and competitive, as the spirit of the Consumer Duty intends.

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