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Countdown to Consumer Duty: What does it mean for Customer Experience?

Posted: Feb 16, 2024
Read time: 10 minutes
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Understanding the new Consumer Duty

The new Consumer Duty is a regulatory framework that aims to enhance consumer protection by ensuring that financial firms act in the best interests of their customers. This duty, emphasizing buyer accountability and consumer rights, is designed to promote fair market behavior and adherence to retail legislation.

The Consumer Duty is poised to significantly influence firms' operations. This will require organizations to shift their mindset and likely necessitate changes to business practices and processes.

Who does the Consumer Duty apply to?

Consumer Duty applies to all firms regulated by the Financial Conduct Authority (FCA), involving retail consumers. This includes banks, building societies, insurance companies, and investment firms.

Who does the consumer duty apply to

It applies to all aspects of a firm's business, from product design to sales, advice, and post-sale service, thereby reinforcing product liability and adherence to trade policies. The duty also applies to firms' relationships with all types of customers, not just retail customers. This includes small businesses, charities, and other non-retail customers.

However, the FCA has indicated that it will adopt a proportionate approach to enforcement, considering the size and nature of the firm and the risk to consumers.

It's crucial to note that the duty does not absolve consumers of their responsibilities. Consumers are still expected to take reasonable steps to protect their interests and make informed decisions about their financial affairs, emphasizing their buyer accountability. However, the duty does provide an additional layer of consumer protection, ensuring fair treatment by financial firms.

What is the Financial Conduct Authority?

The Financial Conduct Authority is a regulatory body in the United Kingdom, established with the primary role of supervising financial markets and firms to ensure their compliance with statutory regulations. This includes retail legislation and trade policies.

Financial conduct authority

Its main objective is to safeguard the integrity of the financial market, protect consumers, and promote competition. The FCA's remit extends to customer responsibility and buyer accountability, ensuring that firms uphold their purchase obligation.

What do the Financial Conduct Authority do?

The FCA holds the authority to implement and enforce rules and guidelines, investigate potential breaches of regulations, and impose penalties on firms and individuals who fail to adhere to the rules. This includes breaches in product liability and shopping ethics.

The FCA's regulatory framework is designed to ensure that these firms meet high standards of conduct, adhering to market behaviour norms and consumer protection regulations.

The FCA is also responsible for consumer rights, ensuring that financial markets are transparent, fair, and can be trusted.

When does Consumer Duty start?

The Consumer Duty is a new set of rules from the FCA to further protect consumers. The implementation start date for the Consumer Duty was April 2023. The FCA encouraged firms to consider how they can meet the expectations set out in the Consumer Duty before the deadline of July 31, 2024.

The FCA's intention behind the introduction of the Consumer Duty is to ensure that firms provide higher standards of care to their customers, adhering to shopping ethics and retail legislation. It aims to ensure that customer interests are at the heart of firms' business models, product design, sales and post-sales processes.

FCA proposed this duty in response to ongoing harm to consumers in the financial markets and aims to set clearer and higher expectations for firms' standards of conduct.

Consumer duty principles

What changes are being made?

The consumer principle, which requires firms to act in the best interests of their customers, marks a significant departure from the current focus on treating customers fairly. This principle underscores the importance of consumer protection and the role of customer responsibility in market behaviour.

Consumer duty changes

The cross-cutting rules, another key change, require firms to prevent causing foreseeable harm to customers and facilitate them in achieving their financial objectives. These rules, which underscore the importance of purchase obligation and buyer accountability, apply to all aspects of a firm's business. They necessitate firms to consider the potential impact of their actions on customers throughout the product life cycle.

The four outcomes relating to communication, products and services, customer service, and price and value also represent significant changes.

What are the 4 Consumer Duty outcomes?

These outcomes are designed to ensure that consumers are provided with products and services that are fit for purpose, that they are provided with clear and relevant information, that the products and services provided are of an appropriate quality, and that consumers are not subjected to unfair pressure or undue influence.

  1. The first outcome is that consumers can be confident that they are dealing with firms where the fair treatment of customers is central to their corporate culture. This includes upholding their purchase obligation and adhering to shopping ethics
  2. The second outcome is that products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly. This outcome aligns with retail legislation and trade policies, ensuring that firms meet their buyer accountability
  3. The third outcome is that consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale. This is a key aspect of consumer protection, ensuring that firms uphold their customer responsibility
  4. The fourth outcome is that consumers are provided with products and services that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect. This outcome relates to product liability, ensuring that firms meet their purchase obligation and uphold market behavior norms

Consumer Duty's implications for Customer Experience

The Consumer Duty, an integral part of retail legislation, profoundly influences the Customer Experience. This duty aligns directly with the ethos of Customer Experience, emphasizing the need to comprehend customer requirements and to deliver services that surpass these expectations.

The implementation of Consumer Duty requires a shift from a product-centric to a customer-centric approach, a change that significantly impacts market behavior. This transition necessitates the re-engineering of products, services, and processes from the perspective of the customer, signifying that business success is no longer solely gauged by sales figures but also by the quality of the Customer Experience provided.

Furthermore, the Consumer Duty highlights the importance of transparency in customer interactions, reinforcing the concept of buyer accountability. It obliges firms to communicate effectively with their customers, ensuring they comprehend the products or services they are purchasing. This level of transparency cultivates trust, a crucial component of a positive Customer Experience.

How can Customer Experience methodology support Consumer Duty compliance?

The effective implementation of Customer Experience methodology can significantly aid in adhering to Consumer Duty compliance, a key aspect of consumer protection.

This methodology offers a systematic approach to understanding customer expectations, needs, and preferences, aligning with the customer responsibility aspect of the Consumer Duty.

Here are just some of the relevant areas where CX methodology can support compliance with the Consumer Duty:

CX program framework
  • Personas creation, as the ethos behind the Consumer Duty is to put the customer first, this vital step of profiling and empathising with customers based on fictional personas (needs, expectations, psychological characteristics etc.) achieves a greater understanding of audiences - to complement the traditional transactional segmentation which limit an organization in terms of optimizing touchpoints
  • Customer journey mapping, a fundamental component of the Customer Experience methodology, can prove instrumental in complying with consumer rights. Journey mapping allows businesses to visualize customer interactions with their products or services, identify areas of concern, and devise solutions
  • Customer feedback collection and analysis, this VoC feedback can provide valuable insights into the effectiveness of a business in meeting its real customers' needs and expectations. It can highlight areas for improvement, helping firms to enhance their products or services, and deliver a superior Customer Experience
  • CX optimization and solution ideation, compliance isn´t just about structuring and understanding a customer journey but the key is to meet customer needs and fix the frictions that hinder conformity to the regulation. This approach ensures customer needs are prioritized in business decisions, aligning with the customer-centric mandate of the Consumer Duty
  • CX strategy alignment, to ensure continuous compliance with the ethos of the Consumer Duty, truly built into the company operations, brand promise and culture; a first and continuous step in governance is to align your Customer Experience strategy with organizational structures, processes and Service Design

This continuous improvement cycle aligns with the emphasis on customer welfare underlined by the Consumer Duty. In conclusion, Customer Experience methodology can play a pivotal role in adhering to Consumer Duty compliance, a crucial aspect of trade policies.

It provides a structured approach to improving Customer Experience, which in turn supports the objectives of the Consumer Duty.

By investing in Customer Experience methodology, businesses can ensure they meet their regulatory obligations while also enhancing their customer relationships.

Would you like to understand more about concrete and practical steps your organisation can take to ensure compliance? More articles will follow to help you but in the meantime, register for our free webinar “How can you embed Consumer Duty in your organization?” on February 29 or contact us directly for a conversation.

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