Consumer Duty: how does surveillance play its part?

In this guide to Consumer Duty, explore the requirements and how to measure results from a compliance perspective. Plus, learn about how surveillance tools can help your company to fulfil its regulatory obligations.

What is Consumer Duty?

Consumer Duty is a UK financial regulation which aims to set an updated standard for protecting customers in financial settings, such as taking out a loan, or applying for a credit card.

It is very new, only coming into effect on the 31st of July 2023 for open products, and 31st of July 2024 for closed financial products.

The whole rationale behind Consumer Duty is to improve fairness and value for customers, such as reducing the hoops that customers have to jump through in order to cancel certain financial services. Plus, the FCA’s Consumer Duty is about being clear about your products so that customers are empowered to make informed financial decisions – like only buying the financial products that will truly offer benefits.

In particular, regulators are expecting firms to better identify vulnerable customers and protect them from being financially targeted. The rules were put together based on two consultation papers, whereby financial institutions, their consumers, and other interested parties were surveyed on the state of affairs for customers.

Consumer Duty Requirements

We’ve touched on some of the overall aims of Consumer Duty, but there are four key requirements of the legislation:

1. Fair value: including a pricing strategy that considers quality levels
2. Suitability: customers should only be encouraged to buy products that they would benefit from
3. Confidence: improving consumer participation levels
4. Access: consider diversity and how to meet a range of consumer needs

For example, in identifying vulnerable customers, the FCA asks firms to: “set up systems and processes that enable customers to disclose their own needs, and support staff to actively identify signs of vulnerability, for instance through training and resources”. Without capturing vulnerability characteristics, for example, it’s unlikely that firms will operate in full compliance of the FCA Consumer Duty.

Measuring Compliance

Companies will be measured in their compliance through outcomes-based reporting. Every year, they’ll be expected to submit a report detailing:

• The results of their monitoring
• Evidence of any poor outcomes
• Actions they will take to decrease future risk of poor outcomes, including management information
• How the upcoming business strategy will consider Consumer Duty

An important point to consider is that the FCA specifically states that it’s not just vulnerable customer outcomes that must be monitored. In fact, the regulators use the example of “long standing customers, customers from a particular geographical region or customers who buy a product through a particular distribution channel” whose outcomes must be monitored too.

It’s not just complaints data that should be monitored. The FCA also recommends collecting:

• Customer support conversations
• Transaction data
• Behavioral insights (such as product purchases, drop off rates)
• Business persistence rates
• Staff training records
• Third party feedback and more

Finally, the FCA states that they will prioritize investigations based on the harm, or potential to harm, caused by the most serious breaches.

Reaction from the industry

One year on from the initial rollout, the industry has been reacting to the demands of Consumer Duty.

From the industry side, the Financial Conduct Authority is pleased with current progress. On the 31st July 2024, Sheldon Mills said:

“Over the past year, many of you have embraced the Duty and used it as a driver to shift your culture and improve outcomes in your firms.

In cash savings work, for example, we’ve seen firms act more quickly to increase rates following base rate increases. We estimate consumers will get around an additional 4 billion pounds in interest payment per year in money that they can;

• save or reinvest
• use to pay down debt
• Or might boost spending in the wider economy”

A data disconnect

However, it’s become clear that financial businesses will need surveillance tools to play a role in their compliance.

In particular, cryptocurrency exchanges were assessed in their compliance to these new standards, and the FCA found that many were falling short.

Plus, in a multi-firm review of regulated Insurance Firms, the FCA found that only a few firms were able to provide clear evidence of where the monitoring of outcomes directly led to proactive action to improve those outcomes.

“Some firms detailed where there are data gaps and where they have plans in place to enhance either the data or the monitoring approach. However, some monitoring approaches lacked coherence, or were only in the early stages of development.”

This might explain the disconnect between the FCA’s satisfaction, and customer dissatisfaction, as 84% of consumers report no improvement to how financial providers treat them. It’s clear that compliant firms will need to plug those data gaps by relying on high-quality data surveillance, gathering and monitoring tools.

One such tool is Global Relay. We help firms to monitor their internal and external communications, and automatically archive communications data for frequent review. We can help you take proactive action, and improve your strategy for good customer outcomes.

Book a demo with the Global Relay team here.

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