Consumer Duty in Financial Services

6th June 2023

Shifting focus from regulatory compliance to delivering positive outcomes

Customer decisions on the suitability of Financial Services providers, has long been a matter of careful consideration, bearing in mind the longer-term nature of the relationship and potential implications, both financial and reputational.

Over recent years the financial sector has been forced to change dramatically given the current economic climate, and issues such as the PPI scandals, sub-prime lending and unconsidered outsourcing risks all impacting trust in certain providers, alongside external factors such as the pandemic reorientating working and living practices.

During this time financial watchdogs have updated regulations and advocated that compliance was vital to provide better customer experiences and guarantee to safeguard consumer interests. The Financial Services Authority (FCA) set out the final rules and guidance for a new Consumer Duty, which came into force for new and existing financial products or services on 31 July 2023.

Financial providers that adopt a ‘tick-box’ approach to compliance to simply to meet the minimum standards set out by regulators, are not guaranteeing customers the best possible outcomes.

The leading financial providers are taking a more positive outcomes approach, which goes beyond meeting minimum compliance standards. By focusing their energies on supporting customers this shows commitment and allows them to differentiate their otherwise fungible services.

Consumer Duty

To achieve a positive outcomes approach, financial firms should prioritize the needs and interests of their customers. By conducting in-depth research and analysing the results the firm is better placed to understand the needs and preferences of their customers, which allows development of better tailored products and services that meet customer requirements.

An important element of customer experience in financial services is complaints handling and using this valuable feedback to further improve services and how their align with customer expectations. Ensuring that customers are fully informed about the risks and benefits associated with financial products and services prior to the initial sale, as well as providing clear and transparent communication at all points, helps them make better informed decisions.

Using technology and data as a catalyst

While adapting to new technology can be daunting for some customers, it can result in a smoother complaints journey and provide insights and data to further improve their experience. These insights and data can help assist financial firms to assess whether the outcomes experienced by the customers match their expectations.

The accurate analysis of underlying complaints root causes is vital to stopping future similar occurrences that can bottleneck a perfectly functioning service to a halt. Firm's will need to consider if existing root cause analysis processes match the higher expectations under the Duty.

Under the Consumer Duty, financial firms will need to review existing complaints analysis practices to make sure useful insights that identify key trends are being delivered. Firms will be expected to review data sources to assess whether customer outcomes are matched by the Duty’s obligations including whether specific customer segments are receiving worse outcomes than others – and then to understand why this is happening and whether there is a potential non-compliance with the Duty.

This data can lead to the development of new ways to improve their complaints handling capabilities, designing process of products and services, and to make more accurate assumptions of future financial trends that affect customer expectations.

The complaints service

Firms will need to ensure that all customer journeys comply with the Duty. This includes the complaints handling process (the ‘complaints service’). This will include how complaints are made, and the channels available to customers – and the ease of use of those channels. Firms will especially need to make sure that no "unreasonable barriers” are being experienced by complainants and any friction within a consumer’s complaint journey could easily be considered as a "sludge practice" – such as ‘hiding’ an online complaints form in an attempt to help manage workload.

Some complaints may also need to be treated as a priority where a customer may be at risk of harm if the complaint is not dealt with promptly. Communication during the process should also be considered – not only in keeping the customer updated but also in ensuring that internal communication and collaboration is effective and helping to support good customer outcomes during the handling of a complaint. Even where KPIs are already being tracked and monitored, firms will need to ensure these are fit for purposes.

Learning from complaints and preventing harm

The Duty requires firms to demonstrate good outcomes are being delivered. Reviewing complaints data and capturing the learnings will be essential. A failure to identify harm or take reasonable and appropriate action to remedy harm will be a non-compliance under the Duty. The Duty reinforces firms’ obligations to also act proactively in providing redress and remediation. Firms will need to be prepared to take appropriate remedial action – and utilise technology to automate where appropriate – whenever customers have been identified as experiencing harm due to the firm’s conduct.

Training and upskilling staff

Another aspect of improving complaints handling is to make sure that relevant teams are suitably trained and equipped to understand and handle complaints efficiently. Customer service teams are usually the first point of contact for customers looking to give feedback or raise a complaint so these initial interactions can greatly affect the satisfaction or dissatisfaction for the customers.

Larger scale complaint handling operations will also need to balance consistency in decision making against empowering complaint handlers to consider the merits of each complaint and the individual circumstances of the complaining customer.

By training and equipping handlers with best of breed technology, firms can ensure that complaints recognition and escalation process match the customers’ expectations – whilst also guiding staff with clear guidance on appropriate redress when things go wrong. Leadership should position the firm positive outcomes approach stance and implement policies and procedures that offer fair value to customers and ensure they are relevant in dealing with any complaints as per the consumers’ needs. This will also include appropriate investment in complaint handling to ensure complaint handlers have the training and technology they need to deliver good customer outcomes.

Proactive feedback

Conducting regular customer surveys to gather feedback on customer journeys can be used to identify areas for improvement and develop strategies to improve customer services and outcomes. For example, if customers consistently report difficulty in receiving timely responses to their inquiries, the firm can allocate greater resources to improving the processes around this.

Better outcomes for consumers don’t just comprise of a good product or a service, but for the entire customer lifecycle. When grievances and concerns arise around a service provided, complaints should be treated keeping in mind the expectations of consumers and a resolution of the dissatisfaction faced should be proactively provided.

Proof of concept

The Financial Conduct Authority (FCA) will be looking on firms to show evidence of compliance with Consumer Duty beyond the box-ticking approach.

Firms should not only be delivering appropriate solutions and support to clients it is also important to be evidencing that you’re doing the right thing. Having the capability to ensure that all complaints are being dealt and reporting on outcomes and root causes shows the firm is delivering on their promises.

Beyond incoming complaints, the capability to show proactive outreach to customers and improvements based on this feedback in the customer experience would be looked upon favourably by the FCA.

Ownership

Financial services firms should make ownership of the Consumer Duty task the responsibility of the entire organisation, rather than just rely on the compliance teams, empowering all employees across the board to recommend measures.