The final rules of the FCA’s new Consumer Duty are here and with the deadline for compliance fast approaching on the 31st July 2023, we’re here to provide you with the latest regulation’s key takeaways to help you take action.
What are the key dates?
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27th July 2022 – The final rules and guidance on the duty were published.
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31st October 2022 – Firms agreed upon implementation plans.
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30th April 2023 – Manufacturers were required to complete reviews to meet the outcome rules.
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31st July 2023 – Rules start for open products and services.
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31st July 2024 – Rules start for closed products and services.
With just under 7 weeks to go until the deadline of the 31st of July 2023, we understand how daunting it can be in the final throes of reviewing your whole customer journey according to the defined four outcomes quickly and effectively – but don’t worry – we’re here to summarise exactly what to need to know if you didn’t already, and give you a nudge in the right direction to start planning your next marketing and communications campaign with these regulations in mind.
So, what exactly is the ‘Consumer Duty’ and what’s changing for your business and its customers?
The Consumer Duty is ‘the standard of care that firms should give to customers in retail financial markets’ as set by the Financial Conduct Authority, a financial regulatory body in the UK.
Simply put, the latest Consumer Duty sets high standards for 2023 and beyond, really pushing firms to focus on delivering good outcomes for retail customers – within the bounds of what can be considered objectively reasonable.
This latest duty and its principles reflect what consumers are currently facing today and will likely be facing in the future: a fast-paced, ever-changing, and increasingly digital environment.
Digitalisation can be a fantastic opportunity for firms to create a faster, more accessible, and ultra-personalised journey for consumers – but it’s important to monitor and regulate this changing landscape due to the potential backlash that a poor customer outcome can have on their financial future.
What rules and regulations do I need to be compliant with by July 2023?
The Consumer Duty is underpinned first and foremost by the Consumer Principle, Principle 12, requiring firms to ‘act to deliver good outcomes for retail customers.’ This sets an expectation of positive and proactive firm conduct when considering customer outcomes.
This standard of behaviour is further defined by its 3 ‘cross-cutting rules’ that:
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Require firms to act in good faith,
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Avoid causing any foreseeable harm,
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And enable and support customers to pursue their financial objectives.
To be applied across all areas of firm conduct.
Importantly, these also help firms to interpret what comes next in the duty - the four key outcomes:
Ensuring that consumers receive…
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Communications that they can understand
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Products and services that meet their needs…
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…and offer fair value,
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And the support that they need.
You may be asking at this point, well – does this apply to me, my business, and the customers I serve?
In short – ‘the Duty applies to all firms that have a material influence over, or determine, retail customer outcomes ’ across the distribution chain.
From the design, operation, pricing, and distribution of these products or services, to the preparation and approval of communications, and customer support. If you have had a hand in any of these stages in a significant enough way to have an impact on customer outcomes, then this new regulation may apply to you.
This includes everything in the ‘retail customer’ space, whether that be credit-related, deposit-taking, insurance, payments, and investment activities. Both in relation to actual and prospective customers. And in some instances, even the customers that you have opted to decline to offer your product or service.
Although primarily in the B2C space, when in the B2B, if your product or service, when moved or sold down the distribution chain, still directly impacts the outcome for the end consumer – then yes, the consumer duty is applicable to you too.
How do I ensure my firm is ready?
As a good rule of thumb, the FCA suggests that firms should ask themselves whether they are applying the same standards and capabilities to delivering good customer outcomes as they are to generating sales and revenue in comparable areas of business.
Are your customer-support communications as clear as your sales-driven communications?
Is the quality of the post-sale support as good as the pre-sale support you are offering?
Your consumer has to be at the heart of everything, with the aim of helping them achieve their financial objectives and taking as many steps as reasonable to prevent causing any undue harm.
Communication is one of the major pillars of the Consumer Duty and it can make or break your ability to deliver good customer outcomes.
The FCA expects firms to ‘communicate and engage with customers so that they can make:
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Effective,
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Timely,
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And properly informed decisions…
About financial products and services’, this also aims to ensure that consumers can take full responsibility for their actions and decisions thanks to the fact that your firm will have taken all the necessary steps to enable them to do so.
What are some best practices?
The FCA states that ‘Consumers can only be expected to take responsibility where firms’ communications enable them to understand their products and services, features and risks, and implications of any decisions they must make.’
In order to do this, your firm must equip customers with the information they need:
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at the right time,
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in a way they can understand,
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tailored to their individual needs and characteristics – including any characteristics of vulnerability,
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via the right channel,
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securely,
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and in a tested and monitored environment.
This is the only way that firms can put their best foot forward to ensure customers are fully equipped and that you are covered in terms of compliance. These rules are applied across the entirety of the customer lifecycle.
At the crux of the issue: Do you understand your customers?
In order to best serve your customers, tailor your communications to them, and deliver good outcomes – you need to ensure that you fully understand them, their characteristics – vulnerable or otherwise, behaviours, demographics, preferences, and financial goals. Principle 12 of the Duty focuses on customer outcomes, and requires firms to:
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‘pro-actively act to deliver good outcomes for customers generally and put customers’ interests at the heart of their activities’
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‘Focus on the outcomes customers get’
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Act in a way that reflects how they ‘actually behave’
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Better enable them to ‘access and assess relevant information’
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Help them to ‘pursue their financial objectives’
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Ensure they have ‘sufficient understanding of customer behaviour’
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Act to address when it’s been identified that good outcomes are not being achieved
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Consistently ‘challenge themselves to ensure their actions are compatible with delivering good outcomes for customers.’
When understanding your customer, we see best practice as:
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Addressing them as an individual via personalisation,
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Serving them via a channel that will effectively engage them,
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Tailoring the visual identity and messaging in a way that will resonate with them and the market audience they belong to,
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And monitoring the outcome of both their experience with your product and service, and their engagement with your communication methods.
Are you delivering good outcomes for all audiences?
Accessibility is also an important factor in this Duty. However, it goes without saying that accessibility standards have been raised across the board. Guidance in the Duty is also aimed at better serving consumers in vulnerable circumstances, and working on diversity and inclusion. ‘The Duty raises the standard if care afforded to all consumers’, this means that your communications should be accessible as standard, all the time, no matter the audience. The foreseeable risk that could be caused by serving accessible communications to all is very little to none, by comparison, the harm that forgoing delivering on accessible requirements for more vulnerable customers is considerable. Firms should look to ‘ensure that customers in vulnerable circumstances experience outcomes as good as those for other consumers.’
The Duty is also sets expectations on diversity and inclusion. Seeing ‘a diverse and inclusive industry as central to achieving the outcomes we expect in financial services.’
Do you need to tailor your communications to the nature of the product or service being offered?
Absolutely. In 4.17 of FG22/5, the FCA provide guidance on how firms should act depending on the nature of the product or service – and above all, its risk of harm to customers. Here’s some quick guidance on this:
Where a product is higher risk, firms should ‘take additional care to ensure it meets customers’ needs and is targeted and distributed appropriately.’ Certain products are only appropriate for certain customers.
Where a product or service is more complex, firms should ‘take extra care to promote, and monitor, customer understanding.’ Examples of this include designing customer journeys that make it clear that a product is only appropriate for a narrow target market. Or, to introduce ‘positive friction to a sales process for a complex and high-risk product. E.g. requiring customers to ‘watch a video on the risks, before they can make a transaction’.
In short, are your communications: relevant and timely, accessible, personalised, engaging, secure, and monitorable?
If not, it’s time to get them up to scratch. In a digital-led world, there is a multitude of solutions that can help you ensure that your marketing and communications delivery is compliant with this new Consumer Duty. VideoSmart’s video marketing solutions can do just that. Personalised video delivers tailored content to your customers at the highest level, furthermore, it drives engagement by bringing financial data to life through video. Interactive video can also make your video more effective, improving understanding, driving higher levels of activity, and reducing the number of steps in a customer journey. The FCA states that ‘research by the Behavioural Insights Team found that using a question-and-answer format to present key contractual terms improved consumer understanding by 36%.’ VS Messenger, our video messaging platform, delivers all of this on a one-to-one basis so that you are covered from every angle. All video solutions, whether personalised, interactive, or messaging – come with access to our metrics dashboard as standard. So you can monitor the effectiveness of your campaign, and the outcomes for your customers, in one dashboard.
VideoSmart has the perfect solution for your financial product or service, no matter the complexity. We offer a consultative approach to our campaigns, working with our clients to help them deliver good outcomes for their customers. Our work in the financial services space has led to multi-award wins over the past few years, including Marketing Campaign of the Year two years running at the European Pensions Awards 2021 and 2022, the Success in Customer Service award at The Card & Payments Awards 2021, the Best Use of Technology Award at The Car Finance Awards 2020, and more. Get in touch with us at hello@videosmart.com to see how we can transform your marketing and communications strategy with our video solutions.
