The introduction of the Financial Conduct Authority's consumer duty in 2023 marked a significant milestone in the financial services industry, compelling firms to undergo a substantial cultural transformation.
This shift was not universally welcomed, creating a mix of reactions across the sector.
But, as we approach the one-year anniversary of the duty's kick-off, it is a good time to evaluate its impact, the industry's response, and whether these new measures have effectively promoted growth and/or positive outcomes for both the industry and consumers.
We will also try to offer our predictions for what might come next, as the duty is expanded across closed products.
Impact on industry practices
Data released by the FCA in February this year revealed that 43 per cent of 1,230 firms surveyed by Ipsos UK reported no difficulty implementing aspects of the duty.
This analysis highlights that while almost half of the firms have adapted to the duty relatively smoothly, others have faced significant challenges.
According to the FCA’s good and bad practice report, also published in February, for the most part firms have been:
- making a conscious effort to inform staff that their actions and behaviour should focus on customer outcomes;
- accelerating business changes for better customer outcomes – for example, the FCA points out that some firms have switched focus to service metrics and customer satisfaction surveys to improve standards;
- ensuring that everyone in the business should take responsibility for good customer outcomes, not just risk and compliance teams;
- prioritising focus on the customer at the board level;
- incentivising staff to ensure consumer interests are in line with business strategies; and
- making efforts to better understand their customer bases through improved data and metrics.
If we look from our membership perspective, we see a similar picture.
Consumer duty has been welcomed by some of our members as a catalyst for them to reassess and modernise outdated practices and foster a culture of innovation aimed at delivering enhanced value to consumers.
It has also highlighted how enhanced disclosure requirements and the development of tailored products and services are positive changes driven by a renewed focus on consumer outcomes.
Overall, however, the industry’s approach remains one of prudence and patience, with the importance and need for the duty plain to see.
Is the industry falling short?
In November 2023, a speech from Nisha Arora, director of cross-cutting policy and strategy at the FCA, outlined the difficulties faced by consumers who struggle to contact one or more of their financial services.
This led to just 41 per cent of adults having confidence in the UK’s financial services industry.
Data from the FCA found that 7.4mn people (14 per cent of adults) had unsuccessfully attempted to contact one or more of their financial services providers.
