The Cost Of Not Complying With the Consumer Duty Rules

Published 10/04/24 under:

In 2023, the Financial Conduct Authority (FCA) ushered in a new era of consumer protection with the introduction of the Consumer Duty requirements. The deadline for financial organisations to meet these guidelines looms large in the next few months.  As financial firms grapple with the complexities of implementation, you don’t want to get left behind.  That’s why we’re ready to provide you with all the guidance you need on overcoming the challenges before the July deadline.

What the Requirements Mean

The Consumer Duty represents a fundamental shift in how financial firms engage with their retail customers, prioritising consumer interests, fair outcomes, and transparent communication. However, translating these principles into actionable strategies requires careful consideration and robust implementation frameworks.

Changing Times

One key aspect highlighted by the FCA is the need for a cultural shift within firms. They encourage embedding a culture that prioritises consumer interests at all levels of the organisation, fostering transparency and fairness in all interactions. Enhanced transparency is another crucial aspect emphasised by the FCA. Clear and transparent communication is paramount to meeting the requirements of the Consumer Duty, empowering consumers to make informed decisions about financial products and services. Additionally, the FCA stresses the importance of continuous monitoring and evaluation to assess the effectiveness of Consumer Duty implementation and identify areas for improvement.

Challenges Identified

Financial firms have identified several challenges in implementing the Consumer Duty. One significant challenge is the allocation of adequate technology resources to support compliance efforts. For example, to enable the effective execution complex tasks at scale, such as calculating cost/benefits across an array of products in differing markets, firms need to invest in business process automation, integration between multiple line-of-business systems and data sources, plus intuitive tools for their staff and multiple digital communication channels for clients.   

Adequate investment in technology infrastructure is crucial to enhance transparency in consumer interactions and the understanding of people’s specific needs – especially with vulnerable customers, yet many firms face hurdles in this regard. Another challenge lies in balancing compliance with the Consumer Duty while maintaining operational efficiency. Firms must invest in streamlined processes and training programmes to ensure that compliance efforts do not hinder day-to-day operations. Moreover, establishing open lines of communication with regulators, such as the FCA, is critical for navigating the complexities of Consumer Duty implementation.

Insights from The Industry

Fundamentally there is a real emphasis on the importance of clarity with regard to outcomes, as the duty places a renewed focus on delivering fair outcomes for consumers. This requires firms to reassess their product design and distribution strategies to ensure suitability and transparency. Furthermore, experts highlight the significance of meaningful communication. Clear and meaningful communication is key to building trust with consumers and demonstrating compliance with the Consumer Duty. Firms must simplify complex information and provide consumers with the facts they need to make informed decisions. 

The Cost of Non-compliance

The potential costs of failing to comply with Consumer Duty range from sanctions and fines from the FCA, increased scrutiny and impact to operations to reputational damage from adverse media coverage and loss of trust from customers. Conversely, the opportunity presented by getting Consumer Duty right is to enhance your brand by delivering – and being seen to deliver – an excellent customer experience, engendering loyalty in an increasingly transient world and supporting growth by being seen as a trusted provider.

As financial firms navigate the challenges of implementing the Consumer Duty, insights from the FCA, industry players, and experts provide valuable guidance on best practises and areas for improvement. By prioritising consumer interests, enhancing transparency, and fostering a culture of compliance, firms can navigate the regulatory landscape with confidence and strengthen trust and confidence in the financial services sector.

For more information, Microsoft are holding a webinar on June 6th which will give you some excellent insights.  In the meantime we would encourage you to contact John Odell via LinkedIn or email and see how we can help you get through this important period seamlessly.