The FCA’s Consumer Duty - assessing its impact six months in

Change is rarely easy. When that change involves thousands of firms raising their game on how they treat customers, it definitely falls into the “tricky” category. That’s what the Financial Conduct Authority (FCA), the regulator for the financial services sector, is attempting to achieve with the Consumer Duty. 

These more ambitious rules came into force last year, and their impact so far is weighed up in new analysis the regulator published yesterday. They make for interesting if, at times, worrying reading. The FCA’s analysis shows the positive impact a different approach can have for consumers, especially those of us with mental health problems. But it also reveals how much more needs to be done – by firms but also by the FCA – for this change to be deemed a success.

Under the Consumer Duty, banks, credit card providers and a wide range of other companies are required to meet new standards for consumer protection. It includes explaining how they’re providing fair value to customers and what they do to help consumers understand products and get the support they need. 

No one was expecting an overnight transformation. That’s in part down to how wide-reaching the Duty is – from designing a product right through the customer’s journey – but also because lots of firms had a long way to go. At Money and Mental Health, we’ve noted plenty of good practice in the sector but our Research Community have for years told us about situations in which firms haven’t taken the right steps to deliver good outcomes.

So after six months or so of the Duty being in place, now seems a sensible moment to assess how things are going. Encouragingly, there are lots of positive examples. One approach the FCA highlights is something we’ve called on firms to do for years: use customer data to spot what might be a potential vulnerability. The specific example the FCA cites is on signs of gambling addiction, and making sure that information is passed onto specialist teams. (Those are the sorts of ideas we’ll be exploring in a new programme of work kicking off later this year.) Sticking with vulnerability, it’s also great to read that firms are helping customer-facing staff to take their time with customers with vulnerabilities. This helps staff to make sure customers get support tailored to their needs, rather than worrying about how quickly they’ve wrapped up the call or how many calls they can get through.

But as well as the positives, the analysis points to poor practice from firms. If this was solely in areas where firms were being asked to do much more than in the past and hadn’t quite got there yet, that would be more understandable. Instead, many of the examples are of practices that wouldn’t have been acceptable even before the Duty was introduced. The FCA outlines how some firms continue with “unnecessarily requesting evidence” of customers’ vulnerabilities, or “telling those who identify as vulnerable that it might affect their ability to receive the service.” It also notes that some firms require customers to repeatedly disclose their additional needs when transferred between different teams with the firm.

On the one hand, that these sorts of practices exist is no surprise. We polled 5,000 people with mental health problems in 2021 and found that only 14% of respondents had ever disclosed their condition to a financial services firm. Being required to explain your condition over and over again, or being dubious that it would make a positive difference are some of the reasons Research Community members told us that they didn’t bother disclosing. With discussions of ‘tell us once’ systems that stretch across different sectors, it shows how much more needs to be done to make ‘tell us once’ work in just one firm.

Back in July, my colleague Alexis noted how the Consumer Duty wasn’t just a practical change for firms but a culture shift too. It represents a move away from more concrete rules on what not to do, to a focus on the bigger picture and delivering good outcomes. While the FCA’s assessment of good and poor practice doesn’t give a sense of the scale of the problem, they also published a survey of firms yesterday. The answers suggest that overall firms feel they have made good progress and found implementation manageable. 

But that appears to jar with the response to another question. When asked whether their firm has revised or withdrawn any communications because they “did not support the consumer understanding objective and/or may not deliver good customer outcomes”, just 19% of firms said yes. The majority (56%) said their communications had been reviewed and no changes had been made. Again, drawing on what we’ve heard from thousands of people with mental health problems over the years, the idea that most firms can’t find anything to improve to help their customers better understand key information is puzzling.

As with any big change, the Consumer Duty is going to take time to bed in. For the firms who are forward-thinking and ahead of the curve, that means ongoing monitoring of what they’re doing and how outcomes are looking for different customer groups – including the one in four of us with a mental health problem. That isn’t straightforward, but our Mental Health Accessible team is ideally equipped and ready to help firms navigate that challenge.

Other firms seem more complacent. Some insist they don’t have any customers with vulnerabilities. Others are adopting a ‘wait and see’ approach, holding off on taking action on issues until the FCA steps in. For these companies, we must start to look at the FCA for answers too. 

When the Consumer Duty was proposed, the response from Money and Mental Health and many consumer groups and charities could be boiled down to “it sounds great, as long as you enforce it properly”. The FCA has had to achieve a careful balance about being realistic that meaningful change takes time, while also creating rules with teeth behind them. 

In the lifetime of the Duty, it’s still early days. July will mark the Duty’s first anniversary and will see it expanded to ‘closed book’ products. But as it begins to be fully implemented, the key question for the FCA will become louder: when and how will you intervene?