Call of (Consumer) Duty: The FCA gets tough in regulatory "wake up call" to firms
What are the new consumer Duty rules and why are they so important?
From today to meet the new requirements of the Consumer Duty all financial services organisations in the UK - from freshly seed-funded fintech startups to centuries-old incumbent banking giants - must “act to deliver good outcomes for retail customers".
Recognise Bank’s chief operating officer Ronelle Arbib says at the core of the Consumer Duty, is a shift “in a customer-first culture in financial services” and that this applies through a customer’s lifetime with a business.
“The aim of the implementation of Consumer Duty is to enhance and improve the experience for the customer, as it requires firms to understand who their customers are and ensure that they are delivering products and services that meet their needs,” she said.
With a cost of living crisis still in full swing, today’s implementation of the Consumer Duty comes at a time of great need for the customers of banks and fintechs to see more ‘positive outcomes’.
Neil Kadagathur, Co-Founder and CEO of Creditspring, comments: “The Bank of England’s figures shed a hugely concerning light on the state of the UK’s household finances and highlight the risk of a future debt crisis if people are forced to keep borrowing to survive.
“Almost one in five households are reliant on their savings to pay bills – but with rapidly dwindling savings pots, what happens when these run out? Millions of people will be forced to borrow to get by in the next six months and younger people are likely to be hardest hit - our research shows that three in ten 25-34 year olds have no option but to rely on credit.
“If households are going to be more reliant on credit then lenders must become more transparent around fees, offering more affordable products to meet the rising demand. The FCA’s Consumer Duty is much-needed and will help to improve outcomes for borrowers but the industry will need to go above and beyond in order to step up its support for borrowers in this challenging period.”
The Financial Conduct Authority, the UK’s financial regulator has already flexed its new regulatory muscles via one of the more contentious current financial issues: the cash savings market.
The FCA has unveiled a ‘14-point action plan on cash savings’ and said firms offering the lowest savings rates will be required to justify by the end of August how those rates offer fair value.
The new savings rules in full:
As part of its action plan, the FCA will:
1. Require firms offering the lowest rates to provide their fair value assessments under the Consumer Duty by 31 August 2023 and take robust action by the end of 2023 against those who cannot demonstrate fair value.
2. Review the timing of firms’ savings rate changes each time there is a base rate change.
3. Publish an analysis every 6 months of firms’ easy access savings rates, listing distribution from best to worst.
4. Analyse the difference between on-sale and off-sale products, challenging firms to explain how large differences offer fair value and considering further action if this gap does not continue to close.
5. Review firms’ performance on cash ISA to cash ISA switching.
6. Conduct further analysis into the contribution of cash savings to firms’ profitability.
7. Review the effectiveness of firms’ engagement with customers by the end of March 2024 and take action if firms have not effectively delivered the outcomes the FCA has set out.
8. Work with others, including the Money and Pensions Service, to identify what more can be done to support consumers to save regularly, strengthening their financial resilience.
The FCA expects firms to:
9. From today, use their fair value assessments of on-sale savings products to assure themselves and the FCA, where needed, that these represent fair value for customers.
10. Accelerate their fair value assessments for off-sale accounts ahead of the July 2024 Consumer Duty deadline for off-sale accounts.
11. Take action to prompt their customers in lower paying savings accounts or non-interest bearing accounts to consider alternatives.
12. Closely monitor the effectiveness of customer communications, with larger firms providing the FCA with an evaluation by end 2023 and any follow up action they are taking.
13. Support consumer financial resilience by encouraging customers to start saving and/or search for higher rates, with the largest firms committing to support a targeted firm-by-firm communications campaign.
14. Consider how they can support their customers to access the free advice available from MoneyHelper.
Myron Jobson, Senior Personal Finance Analyst at Interactive Investor, says the move is designed to give customers a fairer deal on savings products.
“Paltry savings rates offered by leading banks are a bitter pill to swallow for savers whose wealth is being eroded by a double whammy of inflation and rising borrowing cost,” Johnson said.
“There is a sense that the same amount of energy that has gone into upping the cost of mortgages has not been exerted when it comes to upping savings rates. It has taken some savings providers months to pass on higher rates to savers – if at all,” Johnson said.
Andrea Wintermantel, financial services partner at PwC UK says the intervention on the first day of the Consumer Duty shows how seriously the FCA intends to supervise its new powers and “embed” the Consumer Duty at the heart of its supervision strategy.
“This is a wake up call to firms that the FCA will have little patience for any who are not proactively complying with the Duty,” she said.
“While consumers should shop around for the best deals, today’s announcement could mean improved savings rates for some in the coming months, including quicker pass on rates from base rate increases. Consumers may also find they receive more - or different - communications from firms, which should make it easier for them to access better rates,” she added.
The move may mean, Wintermantel adds, that we see some banks and other providers potentially withdrawing some products from the market.
“Savings providers will need to review their customer communications and engagement strategies against these standards - additional proactive prompts are likely to be needed to meet the FCA’s expectations,” she said.
“Today’s update also marks the start of changes in the cadence of regulatory interventions, with firms having to respond very quickly to FCA interventions, and to meet specific desired outcomes that the FCA has set out,” she added.