Consumer Duty Legislation - One Size Does Not Fit All!

At Aerice Consulting, a number of clients and other organisations in the Financial Services sector have asked us about the #consumerduty legislation. This legislation, which is expected to come into effect in the UK in July 2023, is designed to improve consumer protection in the financial services industry. The legislation places a greater responsibility on financial services firms to act in the best interests of their customers and to treat them fairly. In this article, I want to share some of the key elements of the legislation and how best to go about making sure you are compliant.

Here are some key things that financial services firms need to be aware of when implementing the Consumer Duty legislation:

1.?????#puttingcustomersfirst : Firms will be required to act in the best interests of their customers, taking into account their needs, objectives, and circumstances. This means that firms will need to prioritise their customers' interests above their own and ensure that their products and services are appropriate for their customers.

2.?????#treatingcustomersfairly : Firms will need to ensure that they treat their customers fairly at all times. This includes being transparent about fees and charges, providing clear information about products and services, and dealing with complaints promptly and fairly.

3.?????#clearcommunication : Firms will need to communicate with their customers in a clear and transparent manner, using language that is easy to understand. This will help to ensure that customers are fully aware of the products and services they are using and the risks associated with them.

4.?????#monitoringandreview : Firms will need to monitor their products and services on an ongoing basis to ensure that they continue to meet the needs of their customers. They will also need to review their policies and procedures regularly to ensure that they are compliant with the Consumer Duty legislation.

5.?????#stafftraining : Firms will need to ensure that their staff are trained to understand the requirements of the Consumer Duty legislation and to implement the necessary changes to their policies and procedures. This will help to ensure that customers receive the best possible service from the firm.

Overall, the Consumer Duty legislation represents a significant change for financial services firms in the UK. Firms will need to be proactive in implementing the legislation and ensuring that they are fully compliant. This will help to improve customer trust and confidence in the industry, and ultimately benefit both customers and firms.

Many firms will believe that they are currently putting their customers’ interests first and from a cultural perspective are already aligned to the objectives of the new legislation. Whereas there are others to whom this does represent a great challenge. Some of the key challenges that firms may face include:

1. Changing business practices: The Consumer Duty legislation requires firms to make significant changes to their business practices, such as putting customers first and treating them fairly. This can be a difficult adjustment for firms that have traditionally focused on maximising profits and meeting their own needs. For those firms that already adopt a ‘customer first’ ethos, the work to be done here is not at all overwhelming.
2. Compliance costs: Compliance with the Consumer Duty legislation can be costly, particularly for smaller firms that may not have the resources to implement the necessary changes. Firms may need to invest in staff training, technology, and systems to ensure that they can evidence compliance with the legislation.
3. Complexity of implementation: The Consumer Duty legislation is complex and requires firms to make significant changes to their policies, procedures, and operations. Implementing the legislation can be seen as a time-consuming and resource-intensive process, particularly for larger firms with more complex business models. As such, firms often look for a ‘different’ way out with this, but whilst the task at hand appears complex, the approach to implementation doesn’t have to be if you have the right support.
4. Changing culture: The Consumer Duty legislation requires firms to adopt a customer-centric culture, which depending on your start point will either be an incremental one or indeed more significant. Firms will need to change the way they think about their customers and their business, and ensure that their staff are fully committed to the new approach.
5. Regulatory scrutiny: The Consumer Duty legislation will be closely scrutinised by regulators, who will be monitoring firms to ensure that they are compliant. Firms will need to be prepared for regular inspections and audits, which can be disruptive and time-consuming.

As compliance is to be taken seriously, I would suggest that all impacted firms assess their capability maturity across the key elements concerned. This allows for targeted change in the specific areas that need it most. This need not be a lengthy exercise for assessment, nor for implementation, as each organisation is unique to themselves. Overall, implementing the Consumer Duty legislation is likely to be a significant challenge for financial services firms. Firms will need to be prepared to invest the necessary time, resources, and effort to ensure that they are fully compliant with the legislation. However, the benefits of improved customer trust and confidence in the industry make this investment worthwhile.

The key takeaway here is not to adopt a one size fits all approach and instead assess potential changes on a merit basis of what your organisation needs and what compliance looks like for you. At Aerice Consulting we take a unique and highly effective approach to regulatory compliance seen yielding excellent outcomes and plaudits from clients and regulators alike. Get in touch to find out more.