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Building Regulation Around The Consumer

Wednesday, 23 February 2022

The FCA takes consumer focus to new levels in 2022

The FCA has always had consumers at the heart of their regulatory agenda but this is going to another level in 2022. With the introduction of Consumer Duty coinciding with support for consumers just recovering from the pandemic and battling a cost of living crisis, financial services firms need to get to grips with multiple new initiatives.  

Anthea Coulter, Account Director at EQ Hazell Carr, looks at what firms can expect to be high up on the FCA’s consumer-focussed agenda in 2022, and how they can get a head start on ensuring their operations can adapt to the changes.

Anthea Coulter Anthea Coulter Account Director, EQ Hazell Carr

Consumer Outcomes Take Centre Stage

The biggest change is due this summer with the introduction of Consumer Duty. With the second consultation having closed this month, the full policy statement is expected in July. With it comes a raft of tightened consumer protections that the FCA hope will drive further cultural change within the FS sector.

The Consumer Principle - “A firm must act to deliver good outcomes for retail customers[1].” - underpins the Consumer Duty, with all decision making expected to have this as a driving factor. The key aim is that consumers get products and services which are fit for purpose, provide fair value and that they fully understand and are supported in using them.

The practical side of the Consumer Duty features four outcomes and areas of focus for where the FCA expects to see the Consumer Principle shape decision making; products and services, price and value, consumer understanding, and consumer support. This will influence everything from communication channels and materials through to the very design of products and services.

Key actions – There are many to choose from but by focussing on the areas that make up the four outcomes outlined above businesses can start planning now for any changes they need to make to their customer-facing processes, services, and products.

A Shared Responsibility

The FCA is also keen to empower and educate consumers to enable them to make informed decisions about their own financial wellbeing and emphasises the vital role that FS firms must play in this. Many financial products can be complex for the layperson, whether or not they are in vulnerable circumstances, and firms should take positive action to help consumers of all requirements fully understand the various products and services available, the pros and cons of each, and what makes them particularly suitable for that customer's situation.

The FCA believes that by putting customer outcomes at the heart of all decision making, firms will not only be designing fairer and more suitable products, but also be thinking of more effective ways to communicate their benefits, and support consumers to make the most of their finances. This should be true of all products, whoever they are designed to support.

Key actions – Review the products you are offering consumers today, how you communicate them, and review the customer journey at each stage. Look at any barriers in the customer journey, is there jargon or reams of legal terminology attached to them? How can you simplify this? Also do a deep analysis of your complaints data for upticks and make sure your root cause categories can help you identify trends properly. Often, there could be a quick fix in there that can solve a far larger problem.

Resilience And Recovery

Having weathered the pandemic, most businesses now have a far clearer idea of their strengths and weaknesses in keeping the lights on and customers served. While no one is wishing for any repeat of the last few years, the FCA is keen to keep operational resilience top of mind for FS firms. Following the introduction of their key policy statement in 2021, from March 2022[2], the FCA will begin their assessments on acceptable levels of impact tolerances to help inform how robust operational resilience within the sector is.

In addition, as the economy recovers from the impact of the pandemic, now is a good time for businesses to review the effectiveness of the changes that were made, often at great speed, when it first hit. This is particularly important ahead of the Consumer Duty introduction and the changes to best practices that will come into play when it is in force. Any loans or payment holiday elements of products still on offer must be suitable, and in the consumers' best interests, for them to pass the new tests.

Key actions – Test and adapt your DR/BC plans to ensure you have appropriate support. Are there reliable partners you could work with?  Review the appropriateness of processes and products that were introduced at the start of the pandemic – particularly payment holidays and loans that are still available, or simplifying claims processes – to ensure they are in the consumers' best interests. Be proactive in taking any remedial action required.

Buy Now, Pay Later, Act Today

With the recommendations from the Woolard review that the BNPL sector is bought under FCA regulation, it is only a matter of time before these currently unregulated products find themselves falling in line with other financial lending products.

The FCA fully recognises the importance of this sector and BNPL products and is keen to be involved in how it develops and engages with its customers. It is using current consumer protection legislation to focus on communications, marketing, and promotions to prospects and customers of these firms.  

The results of this are already starting with the recent announcement that the FCA has secured contract changes for several of the market’s biggest players, all of whom have been actively working alongside the regulator to support these changes.  

Key actions Get ahead of future regulation by reviewing current terms, promotions, and products in line with current FCA best practice. Remember to keep an eye out and fully engage with both the government and regulator’s consultations