What does the new consumer duty mean for financial firms’ customers?

A new consumer duty has come into force, setting new standards for financial firms to follow.

Here is a look at how the duty works and what it will mean for customers:

– What has happened?

On Monday, the Financial Conduct Authority (FCA) introduced a new consumer duty requiring firms to put customers at the heart of what they do.

The new duty has come into force for new and existing products and services that are open for sale or renewal. It will be introduced on July 31 next year for closed products or services.

It sets higher and clearer standards of consumer protection across financial services and requires firms to put their customers’ needs first.

– What will this mean for consumers?

Firms will have to provide helpful and responsive customer service, help customers to make good decisions through timely communications that are straightforward to understand and provide products and services that meet consumers’ needs and work as expected.

Letters in a door letterbox
Financial firms will have to provide timely communications under the new consumer duty (PA)

It should be as easy to complain about or switch and cancel products or services as it is to buy them.

Firms should also be able to explain and justify their pricing decisions, including being able to show that rates offer fair value.

Vulnerable customers are also at the heart of the duty. This could mean, for example, firms needing to make sure there is effective access for those who do not go online regularly.

– Do I still need to shop around?

Yes. Customers should still shop around and compare products. The consumer duty will help arm consumers with information that could make it easier for them to shop around.

– What concerns have already been highlighted?

The FCA’s financial lives survey found that one in seven (14%) adults who held one or more financial products – or 7.4 million people if the findings were projected across the UK – had unsuccessfully tried to contact one or more of their financial services providers in the 12 months to May last year.

An estimated 3.6 million people (7%) were able to contact one of their financial services providers but could not get the information or support they wanted.

In May 2022, only 41% of people had confidence in the UK financial services industry, and just over a third (36%) agreed that most financial firms are honest and transparent in the way they treat them.

Adults with characteristics of vulnerability were more likely to report that customer support services did not help them at all to achieve what they wanted to do.

A man using a laptop
It is hoped the consumer duty will improve trust and confidence in financial services over the longer term (PA)

– What should the duty achieve in the longer term?

It is hoped that, over time, the duty will improve trust and confidence in financial services.

Firms are required under the duty to act in good faith towards customers, avoid foreseeable harm and enable and support customers to pursue their financial objectives.

– What should firms have done to prepare?

The FCA expects boards, or equivalent management bodies, to have clear oversight of consumer duty implementation plans.

Firms should have been asking themselves questions, such as whether they are satisfied their products and services are well designed to meet the needs of consumers in the target market and perform as expected.

They should have also considered how they adapt their communications to meet the needs of customers with characteristics of vulnerability.

– What will happen if what firms do is not up to scratch?

The FCA will monitor firms’ actions to comply with the duty and take steps, including enforcement action if appropriate, if it finds they are consistently not providing good outcomes for their customers.