Customer first: New U.K. consumer duty for the financial services industry
Have you ever been presented with stack of financial documents plastered with sticky notes and felt confused about where to sign and overwhelmed by the wording?
This often happens to consumers when, for example, reviewing details about a new car lease or opening a new investment account.
To start, the length of a car lease document is often daunting. And in both examples, the verbiage is overwhelming at best. Yet customers are assured that everything is just routine, and there is nothing to worry about. It is not surprising that these documents are often signed without a great deal of comprehension.
Did you know that research shows one in seven adults has literacy skills at or below those expected of a nine- to 11-year-old? And the FCA’s Financial Lives Survey 2022 found 17.7 million adults (34%) have poor or low levels of numeracy involving financial concepts.
Ensuring that financial services organizations communicate complex information in a clear, understandable manner to deliver positive outcomes will soon be the new standard in the U.K. On July 27, 2022, as a result of decreasing public confidence in retail financial services, the U.K. Financial Conduct Authority (FCA) published its policy statement (PS22/9) setting out final rules on a new Consumer Duty along with finalized guidance (FG22/5). This Duty will raise the standard of care of regulated firms — including those in the e-money and payments sector — that offer products and services to customers in the retail financial markets.
Application of the new rules will take effect through a phased deadline process for new and existing open products and services (July 31, 2023), and by another year (July 31, 2024) for all closed products and services. The new Consumer Duty forces U.K. firms to deliver a better experience by focusing on, among other things, delivering good outcomes designed to meet customer needs, and engaging with customers so they can make timely and properly informed decisions about financial products and services.
The Duty is comprised of the following components for retail customers:
- A new Consumer Principle (requires firms to act to deliver good outcomes)
- Three cross-cutting rules (firm must act in good faith, avoid foreseeable harm, and enable and support customers to pursue their financial objectives)
- Four outcome expectations (relating to the governance of products and services, price and value, consumer understanding and consumer support) that are key elements of the firm-consumer relationship
As regulated firms build out their programs to meet implementation obligations, they will need to modify their operations and shift their culture to one that is outcomes-based for customers. With stronger requirements around governance and accountability, senior leaders will be under great scrutiny to demonstrate not only how their plans and strategies are effective but to assess deficiencies or problems with policies, procedures and operations that will require remediation or rapid action to mitigate potential harm to consumers.
Right now, firms must take steps to review internal policies and identify design changes and communication modifications along the customer journey to facilitate well-informed decision making. Relying on manual processes to leverage information that monitors and tracks communications and outcomes along the customer journey will not be enough.
To support the phased implementation period and meet obligations, information management technologies will be indispensable. This includes using a dynamic enterprise communications engine to improve communications and enable effective compliance by collecting and storing records, monitoring customer interactions, evaluating feedback and complaints and assessing how digital communication channels impact behavior and customer engagement. This journey will not be without technological challenges as significant efforts will be needed to, for example, update communication templates and modernize existing technology to accommodate new feature obligations. However, in the end, the result will be greater ease and flexibility to build templates and implement those types of changes expeditiously.
For example, , with 3.1 million members, 4,500 employees and 219 branches, could not support its growth and strategic vision with its existing legacy platform. The company turned to OpenText Exstream™ customer communications management software to enhance customer experiences, improve communications compliance and reduce costs.
Not only will taking these steps be critical to demonstrate compliance, effectively improving both customer experience and confidence will also help boost economic growth and foster competition between firms to innovate and compete for the trust of consumers. After all, the foundation of our relationship with our financial services institution is clear communication, receiving the right services and products and safeguarding our information and money.
Learn more about how Experience Platform for Retail Banking can help financial institutions enhance customer engagements, gain actionable insights and maintain security and compliance.
— Andy Teichholz and Monica Hovsepian contributed to this blog.