Shades of carrot and stick this week as the UK’s FCA continued efforts to get the financial services sector to embrace the new Consumer Duty, which comes into force on 31 July.

Sheldon Mills, the FCA’s executive director for consumers and competition, delivered a speech at an event hosted by Deloitte on ‘How putting customers front and centre will help industry innovate’, while the regulator’s director of digital assets Matthew Long wrote to e-money firms warning they had to show “a significant shift in culture and behaviour” if they were going to comply.

Mills told his audience: “We understand why there has been initial resistance from some quarters in industry. And perhaps one of the reasons for that reluctance is this: We at the FCA have not been great at explaining what is in it for firms and UK Plc.”

Think differently

But he said that: “The benefits to industry and organisations are that the exercise itself will refine systems and ideas. Thinking differently and exposing yourself to meaningful change is at the heart of innovation.”

He stressed that the Consumer duty was “an outcomes-based approach” and “customer-centric regulation”, following up on comments made by the FCA’s director of consumer investments Therese Chambers last October. He said: “Data and outcomes monitoring is key, giving firms the impetus to target their customers more accurately through new technologies and systems.

And he put forward his view that: “When you are engaging customers in a way that showcases how your product proposition is beneficial to them, it will have an impact on stakeholders and potentially on society at large. You are incrementally, or even radically, improving your offering to the market.”

He outlined a number of actions firms should be taking before the implementation deadline.

• “You should share information with your commercial partners and make sure they are on board. This will include your distribution network and wholesalers as well as retailers and any third parties.
• “You should focus on the areas that will have the biggest impact on outcomes for customers. Ask yourself the obvious question: is your product or service designed to deliver good outcomes for consumers?
• “You can make sure you have narrowed your target market and that they can understand your communications.”

Mills is keen for firms to appoint “a Consumer Duty champion at board level” and commended those who have already involved risk, compliance and internal audit teams. “At its heart,” he said, “the Consumer Duty will mean a shift in culture”.

E-money

That shift was something Mills’s colleague Long warned e-money firms they needed to show more commitment to. In a ‘Dear Ceo’ letter to payment institutions, electronic money institutions and registered account information service providers, he acknowledged “the implementation of the Duty comes at a challenging time,” but stressed that “embedding the Duty effectively will help payments firms continue to build trust amongst consumers”.

He highlighted a number of issues of concern, including the quality of financial crime controls, the effectiveness of customer support channels and the occurrence of misleading promotions, as well as issues around fair value pricing, hidden charges, and an over-reliance on mobile-only authentication.

And he raised concerns about how many firms were meeting their duty of care responsibilities to customers who have been conned by fraudsters. “Whilst we appreciate that the facts of these can be hard to establish, firms should ensure that their treatment of customers who feel themselves to be victims and are distressed is not unduly harsh or unsupportive,” he wrote.