Is Consumer Duty really at risk?

The Chancellor Rachel Reeves has stated her intention to cut red tape in the financial services sector to help accelerate economic growth. She has called regulation the “boot on the neck” of businesses – signalling a desire to move to a leaner and less risk averse approach to oversight.

In particular, the Chancellor has called for the FCA to review Consumer Duty and its impact on wholesale firms – and, in the process, has stirred up speculation about its future. It seems that some in financial services heard the Chancellor’s comments about deregulation and Consumer Duty and jumped to completely the wrong conclusion.

For those yet to fully embrace Consumer Duty, or unlock its competitive and commercial advantages, it is simply wishful thinking. Rather than at risk, Consumer Duty is here to stay and remains the cornerstone of the FCA’s entire regulatory approach.

Geared for growth

The launch of Consumer Duty marked a pivotal milestone in a 10-year project, moving financial services away from prescriptive tick-box regulation towards a principles-based approach focused on increasing trust and improving customer outcomes. That flexibility allows for growth, all while ensuring that consumers remain protected.

Not only are there good reasons behind it, but the benefits for consumers and firms are enormous. What better way to drive sustainable growth in the sector and the wider economy than by increasing trust and improving customer confidence?

While Reeves certainly generated headlines, we need to do more than jump at snippets. Her review focuses explicitly on the impact of regulation on wholesale firms, rather than consumer-facing firms or sectors.

In reality, the FCA has reaffirmed its commitment to Consumer Duty. It has issued Section 165 data requests to financial advisers to understand how the Duty is being embedded. In its latest report, the Financial Services Consumer Panel has also emphasised the importance of the Duty in driving better outcomes and holding firms to account. All the while, the regulator continues to publish thematic reviews across all different sectors, with each built on the foundation of Consumer Duty. Through all the above – and more – it’s clear Consumer Duty is the lens through which the FCA is assessing firms across the sector.  

The bigger issue

The entire conversation speaks of a much bigger issue where there are still so many firms that are miles off in their adoption or embracing the cultural change the regulator wants to see. Firms that hope the Duty will be softened or shelved risk falling further behind, both in terms of compliance and because their competitors continue to realise the opportunities that Consumer Duty presents.

There are also firms which have the best intentions and appreciate the purpose of Consumer Duty, but are struggling in their implementation. In particular, the Duty has placed renewed emphasis on good outcomes for vulnerable customers. The FCA has encouraged firms to engage directly to identify who those customers are, monitor the outcomes they receive and reduce potential harm, and this is proving to be the hardest part of Consumer Duty.

The FCA’s recent multi-firm vulnerability review identified that firms still cannot effectively monitor or take action on outcomes for vulnerable customers. In separate research, it found that many firms are reporting few or zero vulnerable customers, which is simply not plausible. The Financial Lives survey says that nearly half of all UK adults have one or more vulnerability – so logic dictates that, at a basic level, firms should report somewhere near that proportion.

The technology gap

When I hear firms reporting such low vulnerability, it screams a lack of quality data. Consumer Duty is heavily reliant on robust data to understand, monitor and report on segmentation, fair value and customer outcomes. With the right technology in place, firms can implement the correct processes and generate the necessary data to not just comply with Consumer Duty, but to improve and personalise their service to best support customers.

We are firm believers that the process starts with an objective and consistent approach to vulnerability assessment. Making this process digital and accessible drives engagement, while the objective nature of the output means the data can be trusted. An assessment completed through the MorganAsh Resilience System (MARS) for example generates an objective Resilience Rating, which is best described as being like a credit score for vulnerability.

Generating results

In just two years, those firms which have embraced Consumer Duty are already reaping rewards. It goes far beyond staying out of trouble with the regulator. While that is undeniably important, it also enables firms to deliver a better, stronger and more personalised service. We are seeing examples of businesses unlocking real commercial benefit – all by leveraging the vulnerability data they generate. In one case, it has allowed a firm to launch new and highly-targeted products and make better lending decisions.

This isn’t the exception, it is quickly becoming the norm. Firms are delivering better outcomes, improving retention and nurturing stronger relationships. These are far from signs of a regime that holds businesses back – they are signs of a healthier market.

As with other regulated firms, we believe it is essential that regulation is proportionate. We also shouldn’t view Consumer Duty as the finished article. It has to develop, adapt and improve to ensure it remains aligned with the needs of the market and in the best shape to support consumers. While Rachel Reeves may want a regulatory environment that encourages growth and innovation, it doesn’t need to come at the cost of consumer protection. Far from simply coexisting, they go hand in hand.