The next stage of a duty that imposes obligations on financial firms to enhance consumer protection standards commences from Wednesday. This date also marks one year since the Financial Conduct Authority (FCA) launched the consumer duty for new and existing products and services open for sale or renewal.
From Wednesday, the duty will also apply to closed products and services, which are older products sold before July 31, 2023, and have not been marketed or sold to new customers since then. The FCA granted firms an additional year to handle the complexity of older systems and the increased workload.
The consumer duty, which was launched on July 31, 2023, establishes higher and clearer consumer protection standards across financial services, requiring companies to prioritise their customers’ needs. Firms should offer helpful and responsive customer service and assist customers in making informed decisions through timely, easy-to-understand communications.
They should also provide products and services that meet consumers’ needs and perform as expected. Firms should also be capable of explaining and justifying pricing decisions, including demonstrating that rates offer fair value.
The duty also aims to support vulnerable customers, with companies expected to adapt their communications to meet the needs of customers showing signs of vulnerability.
Firms may need to ensure that those who aren’t frequent online users have effective access.
The new duty is aimed at bolstering consumer trust and confidence in the financial sector over time.
Despite the introduction of the duty, it remains essential for customers to continue shopping around; the duty is intended to empower them with information that could simplify this process.
The Financial Conduct Authority (FCA) has observed companies updating their terms and conditions and customer communications, reflecting changes already in motion.
In February, Sheldon Mills, the FCA’s executive director of consumers and competition, commented: “Many firms have already made great progress on the duty for example, they are offering the right products and services to the right customers, eradicating jargon and moving clients to less bespoke and cheaper options where that is a better fit.”
Mills further stated: “We have seen board-level leaders giving serious consideration to what the duty means for them culturally and operationally. Separately, we have seen some firms offering fairer value too, by increasing value received by savers, reducing fees, and maximising benefits to customers.”
However, Mills also acknowledged that there is significant scope for further enhancements within the industry.
He added: “We do not want to see firms waiting to see if we will intervene to address an issue.”
“Firms also need to get serious about their data and not assume they can just re-package existing information. And we want to see the duty embedded across every firm at every level, with leadership from boards.”
In recent weeks, some organisations have raised concerns about customer services or products.
Consumer watchdog Which? reported earlier in July that nearly half (48 percent) of people who have made a claim on home, travel, motor and pet insurance encountered at least one issue during the process.
The issues ranged from customers having to persistently chase insurers for information, to companies failing to respond appropriately when claimants were struggling due to the incident they were claiming for, according to the consumer group.
Moneyfactscompare.co.uk also noted in July that savers have typically been receiving lower interest rates on easy access accounts which are closed to new business than the equivalent rates on “live” deals.
The website revealed that the gap between the average closed rate and live rate on easy access accounts has expanded from 0.08 percentage points in July 2022 to 0.31 percentage points in July 2024.
Based on a £10,000 deposit, the average rate for an easy access account that is closed to new business was found to be 2.82 percent, compared with the live easy access rate at 3.13 percent.
Michael Shand, managing principal at finance-oriented technology and management consultancy Capco, remarked: “The last year has demonstrated the potential for change that puts customers front and centre, challenging firms to be more creative and innovative in delivering better customer outcomes.”
He added that it’s crucial for management and boards to ensure that the data they base decisions on is detailed enough, and robust measures are established to tackle any areas where customers may be adversely affected.
