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Background

 

Following a public consultation, the UK’s Financial Conduct Authority (FCA) will be introducing a new Consumer Duty on financial services firms. The duty comes into force on 31 July 2023 and aims to deliver higher and clearer standards of consumer protection for retail customers of financial services and requires firms to put their needs first.

Specifically, the new rules aim to prevent misleading information from being given to consumers; ensure products and services are fit for purpose; ensure fees and charges are suitable, and to make it simpler to switch products/providers. The principle objective is to make sure firms act to deliver good outcomes for their retail customers.

The FCA has given firms 12 months to implement the new rules for all new and existing products and services that are currently on sale. The rules will be extended to closed book products 12 months later, to give firms more time to bring these older products, that are no longer on sale, up to the new standards.

Salesforce aims to help customers stay informed and drive consistency through the Customer 360 product stack.

 

Key areas the Consumer Duty seeks to address

 

The Consumer Duty will likely lead to a major shift in the design of financial services and firms will need to be ready ahead of the 31 July 2023 implementation date.

Specific areas the Duty will look to address:

a) Supporting and empowering the customer so that the customer can make decisions that will help them achieve their financial objectives

b) Build Accountability where the employees and senior managers are accountable for their duties. Financial Services organisations will need to provide the necessary training and build the controls and governance frameworks.

c) Avoid foreseeable harm to customers and monitor good outcomes with frameworks. Technology can be an enabler here with data visualisation, MI, AI-driven analytics along with right governance to review data and actions needed to avoid foreseeable harm.

d) Act in good faith toward the customers - firms need to tailor their products and services to concepts of foreseeable harm and fair value.

This will require financial services organisations to review their product suite, communications and end-to-end customer journey processes. They will also need to evaluate their operating model around product design models, communication, customer service, reporting, data and analytics, training, distribution channels, accountability controls & governance.

 

A simple overview of the changes

 

We’ve reviewed the FCA’s 121-page guidance note and provided a summary of the key changes your customers will be wrestling with to get ready for implementation.

  1. Meet the key outcomes of the Consumer Duty:
    • Ensure communications are simple and give customers the information they need to make good decisions
    • Design products in a way that enables terms to match needs
    • Ensure customer service is proactive, and helpful and makes it easy to complain and switch; a particular focus on the different needs of customers including vulnerable customers who are more at risk of harm.
    • Price products and services in a way that reflects fair value, without excessively high fees
  2. Track and measure how the above outcomes are being achieved, and when desired outcomes are not achieved, develop action plans to resolve them.
  3. Perform a board review and attestation annually to provide assurance that good outcomes are being delivered and approve any plans to address poor outcomes.

A key point to note on the above is the emphasis on this being the firm’s responsibility to be proactive, for example, they should not wait until a customer asks to be moved onto a better product, but do it for them. 

 

How does this impact our customers

 

  • The move toward ‘outcome-based’ regulation is welcome but can be challenging to implement in the early stages. Rather than having prescriptive rules, e.g. you must send out a payment change notice at least 10 days before the payment, the requirement is far broader and open to interpretation. How do you measure what is a fair outcome? How do you measure good outcomes given the range of customers served? How do you evidence this? These are all questions our customers will be asking right now.
     
  • Given the majority of our customers will have strong growth and profitability challenges, some of the principles here don’t necessarily help with that cause. This will create challenges around how you offer this type of service while maintaining operational efficiency and growing the business.
     
  • Finally, given the Senior Managers Regime, there will be an intense focus on the governance requirements of the Consumer Duty, in particular how senior managers can demonstrate good outcomes or plans to correct poor outcomes at a macro level. 

 

Real-life examples & how Salesforce can help

 

Area of Potential Concern v the new Consumer Duty:

1. Product placement and promotion on websites and via marketing campaigns. When you visit banking websites and the first thing you will see is that the majority place credit cards with high APRs. This makes customers think this is the only source of borrowing and potentially leads to the wrong outcomes. Equally marketing campaigns are often focused on mass mailings of credit card offers (for example) without any real knowledge of who you are sending this to and if it's appropriate for them. v  Improved ability to target ads or campaigns to suitable people.

 

2. Firms don't generally contact customers if a better product becomes available (for example at a lower cost). Many will be on enduring credit on a credit card rather than a lower APR personal loan; insurance firms regularly increase premiums at renewal only to reduce them for those who call and complain. v Product comparisons ongoing. Automated product switching to reduce cost and friction on the bank and customer. Predictive models to understand future product and service needs and make the best recommendations.

 

3. Customer data tends to be proliferated across firms with no single view of what's happening to the customer. Even though 'sales' type data may often be in an SCV, it's not usually the case that service data is meshed together. v Aggregation of data and ingestion into tools which can support analytics, recommendations and more. 

 

4. Practices that make it hard for customers to switch products - fixed terms, exit barriers fees, and barriers to make contact with the Financial Institution harder. In some instances setting up a product is done in a few taps but closing it means wating on hold and talking to a service representative. v Revised product design processes.

 

5. Traditional call centre issues are still prevalent including queue times, complex IVR's and routing, complaint processes and lack of training for staff. Disconnected and siloed platforms continue to leave front, middle and back offie disconnected. v Re-think call centre strategy. Re-training of call centre/operations resources. Improved management of call centre flow and key operational metrics.

 

6. Evidencing compliance given data and people silos. v Data strategy and analytics.

 

7. Training and education are necessary to ensure the customer is at the heart of all decisions. v  Training is required to ensureaccountability, throughout the organisation, understand client centricity in their roles and how they can apply judgements to promote good outcomes. Senior leaders must articulate and advocate this vision, but education and tools will be critical to ensuring customer-centricity is embedded in everyday operations. 

 

For further information please reach out to Neeta Mundra, Aman Virk, Richard Skerrow.

 

Further Reading

 

For those who like to get into the detail here are links to the final FCA rules as well as some interesting perspectives on this subject.