'The consumer duty has been the biggest moment of change in 25 years'

Most of the UK’s largest financial services firms have taken it at face value – leaning into the difficult questions that it has asked of their conduct and business models, and making changes.

Over the past two years it is no exaggeration to say that many thousands of letters, emails and terms and conditions have been rewritten. Websites have been redesigned. More firms have invested in the ability to communicate with their customers by text message.

Fees and charges have been cut – and sometimes even cancelled. In my 25 years working in this industry it has been the biggest moment of change since the Financial Services Authority was established back in 2001.

In a consumer duty world, firms seem to be much more open to real challenge.

It has not, of course, eliminated all bad practice in one fell swoop.

It is fair to say that in many smaller firms consumer duty has led to no change at all. And in some larger ones it has not yet got past being a box-ticking exercise.

But day by day, more and more things continue to improve across the industry – as workstreams first catalysed by consumer duty start to come to completion. 

I set up Fairer Finance 10 years ago, and a key line of work for us over the past decade has been supporting firms by rewriting technical documents such as terms and conditions and policy documents. Over the past two years we have never been so busy.

These projects often take much longer than anyone ever expects them to – as internal stakeholders struggle to find the time to keep the projects moving along.

As a result, many of the documents we have worked on over the past few years still have not made it to market. But they are on the way – and I am confident we will continue to see a steady improvement in the quality of customer literature over the next few years as more of these projects finally come to conclusion.

What has also been evident over the past year is the potential for consumer duty to be a ratchet.

In the run-up to the implementation date last July, most large firms were busy doing something in preparation. But it is fair to say some companies’ first attempts at proving they were offering fair value, or proving that their customers could understand their communications, were poor.

Over the past year the FCA has followed up with examples of good and bad practice – as well as making an example of certain companies or even whole sectors to ensure companies are taking consumer duty seriously. 

This year, as that message has started to sink in, we have found ourselves supporting companies in reviewing their initial consumer duty assessments – ready to acknowledge that they probably did not go far enough first time round. 

Of the fair value assessments we have seen, many did not include proper benchmarking against competitors, or a thorough analysis of profitability at a customer segment level. Many were not honest about the level of the financial capability and competence of their customers.  

Having seen the consequences of getting this wrong, a number of firms have asked us to come and give them a critique of their first effort – and, if I am honest, I have been surprised by some of the companies that we have had the chance to work with.

Fairer Finance is a bit of an odd beast. While we work with companies who want our help to deliver good customer outcomes, we also publish ratings, and we campaign for change where we think regulation or legislation needs updating.

We pride ourselves in being an honest, critical friend to our clients – even when the message is hard to deliver and hard for them to receive. As a result, we have not always been everyone’s cup of tea.

In a consumer duty world, however, firms seem to be much more open to real challenge. Boards need to prove they are working to deliver good customer outcomes, and ensure they are working to prevent foreseeable harm.

If you are doing this properly it will almost certainly be a little uncomfortable.

Cross-subsidies that may be endemic in your market could be hard to defend.

Supply chain inefficiencies and high commissions may be unjustifiable.

But firms can see that the tide is rising, and even if consumer duty has not eliminated these elements in their market yet, they need to plan ahead to consider what day two, three and beyond of this new world could look like.

It is still early days. By the end of this month the duty will extend to closed-book products, and over the months ahead we should start to see the first published Ombudsman decisions where consumer duty has played a key role.

I would guess we are still a long way out from the first published enforcement case that is built on consumer duty. But I feel optimistic about the direction of travel and the way the industry is changing.

When I first started work, the financial pages were full of stories about mis-selling. Pensions, mortgage endowments, precipice bonds, PPI, split-cap investment trusts, ID fraud insurance – the list goes on.

It is hard to imagine any of those scandals beginning in world where consumer duty existed. 

James Daley is managing director of Fairer Finance