FSI COOs discuss challenges of carrying out the Consumer Duty

In 2023, financial firms face sweeping regulatory reforms on the fair treatment of customers. But to implement the Financial Conduct Authority’s (FCA) Consumer Duty rules effectively, they will need to clear some hurdles, including proving that products and services provide value to consumers, maintaining a customer-driven culture, and bridging communication gaps between manufacturers and distributors, participants at the Forum said.

During the Forum, Stuart O’Sullivan, associate director at Protiviti U.K., asked participants to describe ways that value can be demonstrated to customers. One participant pointed to a fixed rate mortgage, noting it offers certainty around payments in a volatile interest rate environment. Several other participants said it is important to understand their negative target market (i.e. the customers they aren’t serving) as much as it is to understand their target market. Others highlighted the importance of communicating non-financial benefits of products and services (e.g. customers value a mortgage because it helps them achieve their goal of owning a new house).

The Forum also focused on the potential challenges of delivering good outcomes for customers, a consumer protection standard established under the Duty. One of the COOs questioned whether customers could consider higher mortgage rates a bad outcome, and whether the bank providing the mortgage would be responsible for that outcome. She said her team is working to link bad outcomes to harm (i.e. outcomes with a direct financial impact), and good outcomes to value.

If a bank were to charge a fee for the early repayment of a mortgage or because funds aren’t available to cover a direct debit payment – generally bad outcomes in the eyes of customers – it could prove it delivered good outcomes, according to Charlotte Stern, senior manager at Protiviti U.K. For example, charging fees for insufficient funds incentivises customers to ensure funds are available to prevent a negative impact on their credit score, and mortgage prepayment penalties are generally offset by the benefit of a lower rate on the new loan, she said.

Delivering good outcomes doesn’t fall to the customer team, or the compliance team, but relies on a culture of continuous improvement across the organisation, Stern said, adding that the Duty is an opportunity for firms to rethink the customer experience. Many of the COOs agreed that particularly in an environment where customers may consider switching firms, maintaining a customer-driven culture is key. 

O’Sullivan added that better communication is needed between the manufacturers and distributors of financial products. Products are commonly designed for a specific market and then distributed, and there is often a lack of communication in between. Firms that design products need to gather feedback from the people that sell them to understand how well they work. If firms can better understand their customers – another pillar of the regulations – they can design better products.

The U.K. Finance CFO Forum was held online in association with Protiviti on 2 November 2022. For more information about the event and U.K. Finance, please contact head of member communities Zoe Bailey @ [email protected].

For more information on Protiviti’s Risk and Compliance practice, please contact Stuart O’Sullivan @ [email protected].