The FCA’s Consumer Duty: A “Catch-All” with Flaws

The Financial Conduct Authority (FCA) is preparing for the implementation of the Consumer Duty regulation. Many firms and financial service providers remain unsure about their readiness to comply with the regulations. The main issue with Consumer Duty – the FCA has set guidelines for companies to follow, but the guidelines are very broad.

One of the key features of the Consumer Duty is the use of a phrase, “material influence,” the understanding being that firms will be held to account for the outcomes of their products and services , even if they do not directly provide them, but are found to have influenced the decision to select that product or service.

Many practitioners view this as too broad and more of a catch-all approach, with some potential flaws. For example within financial services, it could be difficult to determine whether a firm has “material influence” over the outcomes of its products and services. This would likely lead to uncertainty about how to comply with the guidelines.

Additionally, the guidance appears very generic and not very specific to various industries. Banks, lenders, investment firms, etc. all have been given the same guidance when each business line is uniquely different. Good outcomes for deposit accounts versus loans is completely different requirements. The same can be said for investment accounts versus retail accounts.

For these reasons, the FCA will likely continue to refine its guidance in the future. The idea that this new regulation will certainly need shaping and further direction is inevitable. Below are a few things for the FCA to clarify regarding their requirements for companies.

• Provide more clarity on the meaning of “material influence.” This would help firms to understand what they are being held to account for and would make it easier for the FCA to enforce the Consumer Duty.
• Develop more specific guidance on how to assess consumer outcomes. This would help firms to measure the impact of their products and services on consumers and would make it easier for the FCA to assess whether firms are meeting their obligations.
• Consider the impact of the Consumer Duty on innovation. The FCA should ensure that the Consumer Duty does not discourage innovation and should work with firms to find ways to balance the need to protect consumers with the need to encourage innovation.
• Monitor the impact of the Consumer Duty on consumers. The FCA should collect data on the impact of the Consumer Duty on consumers and use this data to adjust the framework as needed.

Overall, the FCA should take a pragmatic approach to the outcomes-based approach. The goal should be to create a framework that strikes a balance between protecting consumers and also encourages innovation. The FCA should be willing to adjust the framework as needed to achieve these goals.

By taking the steps above, the FCA could help to ensure that the outcomes-based approach is a success. This would benefit consumers, firms, and the financial services industry as a whole.

What should you do while waiting for future guidance? We suggest firms should be speaking to consultants, and software vendors like NICE Actimize about how they’re applying process and technology to help prepare for whatever direction the regulator takes.

To learn how NICE Actimize can help, request a meeting today »