Consumer Duty and its risks: information and support, or advice?
If asked to think about risk and the Consumer Duty, we’d expect comments to focus on:
The aim of Consumer Duty being to reduce the risk of harm to consumers; and/or
The compliance risk to firms of non-compliance (especially with the FCA promising swift, assertive and “robust” action where necessary)
But the new rules pose risks to the regulator too, and the FCA will need to manage these over time.
For example:
Products and services – the requirements could result in a reduction in innovation due to firms taking more risk averse approaches, for example by avoiding vulnerable customers.
Price and value - FCA is not a price regulator, or is it? Could the new rules on price and value lead firms to consolidate products and focus on margin levels rather than innovation/quality?
Customer service – FCA’s mandatory minimum standards (e.g. must accept calls, respond in good time) sounds good but does it work for all firms, products and services? For example, fintech products for a digital-only audience where the lower price only works if the product is self-service.
Consumer understanding – firms are required to enable customers to make informed decisions and support them to pursue their financial objectives. But could empowering consumers to make decisions by providing quality, timely information with a 'call to action' become advice? Will FOS/FSCS (and the courts) punish helpful firms?
It is the last point we find interesting, in particular in the context of the FCA’s recent publication on the advice/guidance boundary (and future work in coming months).
This may help manage the FCA's own risk of forcing firms to provide something like 'guidance' as part of the customer understanding outcome, and help to remove perceived impediments on firms from doing the right thing for consumers.
Hopefully, firms who have the willingness, risk appetite and resources to provide guidance to consumers see this as providing a clear pathway to provide support.
However, there will still be firms who continue to believe that this is outside their comfort zone, especially as:
a) Recent experience of dealing with the FCA suggests they will view as an opportunity to conduct a root and branch review of the firm, burning resource, time and energy (and money) with no positive outcome, and;
b) The legal/regulatory risk remains high, with FOS and FSCS likely to back consumers on any complaints, despite clear and obvious signposts to support being guidance only (and then FCA jumping on this).
The counter argument is that this is simply a poor attitude to a good opportunity. For the millions of self-service users of financial services, guidance could be key in building brand and loyalty...and compliance with the Duty.
Get in touch if you have any questions or if you’d like to discuss what the recent publications means for your firm.