July marks the second anniversary of Consumer Duty, the FCA’s regulation aimed at setting higher standards for financial service providers and in turn delivering better outcomes for customers.
Morgan Ash managing director Andrew Gething believes that two years on, some firms have seized the opportunity to stay closer to clients and made good progress in better understanding their needs and tailoring service to deliver better outcomes.
But he adds that there are still firms which are behind the curve, whether it’s in complying with the Duty and getting to grips with principle-based regulation, or the wider expectation to embed these principles into business culture, governance and leadership.
“Complacency remains a big issue as firms overlook the step change required to meet the FCA’s expectations.
According to Gething, one of the biggest areas for improvement is customer vulnerability. “In its recent multi-firm vulnerability review, the FCA identified that firms still cannot effectively monitor or take action on outcomes for vulnerable customers. This is hardly surprising; identifying vulnerable customers has long been considered the most difficult aspect of Consumer Duty.
“Although we are all vulnerable at some point in our lives, many firms still report very few, or zero, vulnerable customers. This just isn’t realistic – especially when the FCA’s Financial Lives survey found that 49% of UK adults have one or more characteristic of vulnerability.”
Gething argues that part of the problem is many firms’ reactive approach – waiting for consumers to tell them of their vulnerabilities or focusing on just a subset of their customer base – or one channel, such as claims or complaints.
“While this is a good place to start, it doesn’t give firms anything like the full picture. To reach that true proportion, the FCA has repeatedly said that firms need to “actively engage” with consumers; this is still proving to be a real stumbling block for many.”
The Exeter head of compliance Toni Hatton insisted that Consumer Duty was never about adding red tape for the sake of it. It was introduced to ensure customers get the outcomes they deserve.
“Since then, we’ve seen genuine improvements across the industry. More providers are offering detailed CPD training on vulnerability, and firms are making better use of customer data to log conversations, flag risks, and follow up more proactively. There’s a much clearer commitment to identifying vulnerable customers and measuring fair value.”
Gething argues that technology has to be the priority for financial services firms in year three. “Not only does it drive efficiencies, it brings consistency, scale and cost savings which cannot be achieved through a manual approach or training.”
Future for Consumer Duty
Consumer Duty has recently found its future in the spotlight. As Gething points out: “The Chancellor’s recent Mansion House speech saw some in the industry taking her comments out of context – and thinking it’s all over for Consumer Duty.
He added: “The shift to principle-based regulation and a focus on outcomes is a significant move. It ensures consumer protection while also providing flexibility for growth. It’s a forward step, yet it’s almost as if firms want to go back to the prescriptive tick box regulation of old.”
Hatton takes a similar line: “The Chancellor’s decision to review the Duty has raised questions about its future. And while it’s right to reflect on how regulation is working in practice, we should be careful not to lose what’s been gained. Weakening or scrapping the Duty now would risk undoing meaningful progress – not just for customers, but for the trust that’s been rebuilt between providers, advisers and the people they serve.
She added: “There’s always room to improve how regulation is applied. In this push for growth, the answer isn’t always rolling back standards, but building and improving on what’s already working.”
