It’s been almost a year since the FCA brought in its new Consumer Duty (CD) regulations and feedback has been a mixed bag across the board about whether or not there’s actually been an impact.
But what has happened in the last 12 months when it comes to the CD timeline?
- 31 July 2023 – implementation deadline for new or existing products that are open for sale or renewal
- December 2023 – the FCA hosts a webinar outlining the next steps for CD implementation
- February 2024 – FCA writes to 20 of the largest advice firms for further information about their on-going services in the wake of CD implementation
- March 2024 – the FCA released it’s 2024-2025 business plan
- April 2024 – several firms, including St James Place and Inspirational Finance Management, have been hit with fines and fees within the first 4 months of 2024
- May 2024 – Dear CEO letters are issued from the FCA to all firms
- 31 July 2024 – implementation deadline of closed products or services
Are firms and advisers seeing an impact?
There is often a gap between regulatory guidance and practical implementation. Although the FCA has provided principles-based guidance on its regulation, translating them into actionable measures is no simple task.
Reports have found that one in twelve advisers fear they won’t be able to meet the 2024 deadline. From “lack of board engagement” and “incomplete reviews of their approach to vulnerable customers,” listed as struggling points, there’s a clear disconnect between what the regulators have laid out, what the board believes is possible, and what can actually be done.
Emphasis on ensuring products and services meet consumer needs could spur firms to provide more tailored, suitable advice. However, the increased regulatory burden and costs associated with meeting these requirements may lead some firms, particularly smaller ones, to scale back their advice offerings or withdraw from certain markets entirely, reducing consumer choice.
What effect is CD having on consumers, according to the consumer?
“The current economic climate means it’s more important than ever that consumers are able to make good financial decisions. The financial services industry needs to give people the support and information they need and put their customers first,” said Sheldon Mills, Executive Director of Consumers and Competition at the FCA, back when the Consumer Duty regulations were announced.
Putting consumer interests first is at the very core of Consumer Duty regulation, but there are concerns about its impact on the accessibility and quality of financial advice.
On one hand, its emphasis on ensuring products and services meet consumer needs could spur firms to provide more tailored, suitable advice. However, the increased regulatory burden and costs associated with meeting these requirements may lead some firms, particularly smaller ones, to scale back their advice offerings or withdraw from certain markets entirely, reducing consumer choice.
But do consumers actually feel aided by CD regulations?
Smart Money People released data that indicates that, actually, they don’t.
In a survey made in June 2024, Smart Money People found that “84% of consumers have seen no difference in service from financial providers since the implementation of the FCA’s Consumer Duty a year ago” with 7% of consumers experiencing declining levels of service since last July.
The survey also found that “consumers’ biggest frustrations are having no access to human support (48%), untrained staff (34%), no available phone number (32%) and an over-reliance on chatbots (24%).”
But only 23% of these customers have actually left a review of their financial services, and only 35% have reported directly to their finance firms in the last five years, leaving a large gap in negative reporting.
Implementing tech to enable future of CD and financial services
We can’t expect technology to change and not expect the industry to follow. We know that there are many benefits to bringing new technologies into financial services to foster growth. But as our sector evolves, it’s crucial to remember that it needs to be balanced against safeguarding consumers.
We’re part of an industry that operates under strict ethical and security standards and needs transparency across every avenue. A robust regulatory framework needs to be in place to shield vulnerable clients. Stringent oversight and accountability measures instil confidence in the investing public and promote trust in the financial advisory ecosystem.
However, an overly restrictive regulatory landscape could stifle innovation and impede the sector’s ability to meet the diverse and evolving needs of consumers. Potential implementations, such as the FCA’s simplified financial services rulebook, could help find a middle ground that encourages responsible innovation, facilitates access to a wide array of products and services, and nurtures talent within the industry.
Consumer Duty was never going to be cut and dry. We know this, because financial advice doesn’t fit within a one-size fits all model. On top of that, we’re seeing technology transform the way we handle almost every financial interaction, from banking to purchases to borrowing.
Some of this has come from the shift in the way we interact with our finances as well as our financial positions themselves during the pandemic. We just have to ensure that, moving forward, we continue to put consumer interest at the heart, striking that much needed balance between human connection and tech-driven support.
