The Consumer Duty – What’s going wrong?

I spend my professional life seeking to ensure that my clients have a clear understanding of the regulatory and compliance outcomes which the FCA (and wider legal obligations) require from them.

This involves my seeking to ensure that firms (or more accurately all their staff) have respect for their regulator, and empathy with regard to reasons why rules, guidance and duties are imposed upon them.

However (as we sadly see in wider society) if those in authority are “not in touch”,  or discourage dissent, or are not “held to account”, all sorts of unintended poor outcomes can follow their actions.

Be it Post Office senior management or politicians – a determination to create an environment in which dissent, discussion and deviation from vocabulary or views is discouraged, leaves:-

• those in authority often adrift from understanding key issues; and
• those over whom they have authority, feeling frustrated and helpless.

So, once in a while, I like to move away from my professional role as an adviser, to that as a commentator. In this article  I am doing that.

I am worried about the approach of the FCA to the implementation and operation of the Consumer Duty.

The FCA is a body created by statute, and one required to operate to deliver the outcomes which parliament gives to it. Those statutory objectives are to:-

• to protect consumers
• protect financial markets
• promote competition

The FCA also have a secondary objective, to facilitate the international competitiveness and growth of the UK economy.

We rarely see the FCA asking, or discussing how, it should achieve a balanced outcome in the delivery of those objectives. What I see is a distortion based upon an apparent assumption that, if the FCA promotes competition, it will, thereby, protect consumers.

This might be illustrated by the manner in which the FCA promotes the Consumer Duty.

As we all know, the Consumer Duty requires firms to deliver four outcomes related to their products and services:-

• that they are fit for purpose
• that they offer a fair price and value   
• that they are understood by customers
• that consumers are supported in a way which meets their needs.

As far as I know, these are of equal importance.

However, since the Consumer Duty focus is on consumer outcomes – maybe consumers might feel that some outcomes are more important than others?

Surveys consistently demonstrate that the overriding concern which consumers have, regarding financial services, is not related to price or value – their major concerns are related to the ability to interact with their provider. Consumers’ biggest frustrations with their financial services are:-

• are having no access to human support (48%)
• untrained staff (34%)
• no available phone number (32%) and
• an over-reliance on chatbots (24%)

That is the real world – and most people reading this will strongly identify with these frustrations in their own day to day life.

So you would think that the FCA would be focusing on these issues as it reviews the impact of the Consumer Duty?

Not so far as I can see.

The regulator is obsessed with price and value.

It links that obsession to delivering on its its competition objective. Let’s remember that the competition objective is but one of three objectives – protecting consumers is equally important.

In a recent speech  Sheldon Mills, Executive Director of Consumers and Competition at the FCA, spoke about “Taking the leap on the Consumer Duty”

In that speech he referred to:-

• price and value 14 times
• customer understanding twice
• customer support once.

All of the references to price and value were related to the FCA’s desire to demonstrate its support for “innovation and competitiveness”.  That is because, in the circles in which the FCA exists, phrases like “innovation and competitiveness” drive thinking – and consume minds.

The actual concerns and experiences of customers seem forgotten – and accordingly firms have little regulatory incentive to, themselves, focus upon them.

Worse still – if the regulator is obsessed with price and value (aka cheaper and cheaper products) how is that additional competitiveness paid for?

The answer is, very often, via cost cutting leading to a reduction in consumer support – the very issue which it appears consumers care about the most.

The Consumer Duty should be about how consumers (“bottom up”) understand and relate to the financial services market – and not obsessively focused (“top down” ) on competition theory and the relationship between price, value and competition.

Firms find it really difficult to concentrate on anything other than price and value because that is seen as the area of threat and risk from the regulator.

The victims of that fear are the very consumers for whom the Consumer Duty is there to protect. Consumers’ have quite different issues and concerns, many of which, I know, most firms would very much wish to address – if they dared.

Fear of debate and any sense of isolation or exclusion are such dangerous things. I suggest that the regulator needs to be much more open and enquiring, aware and responsive to what consumers feel, and what they say matters.

The Consumer Duty should not be a slogan, it should not be weapon, it should not be a device – it should be a dynamic, proportionate and realistic response to the priorities of consumers of financial services.

© Malcolm Padgett

August 2024