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Consumer Duty

Everything you need to know

What is Consumer Duty? Why is it important? How does it impact you? As part of the launch of our new Communications Testing framework and blog series, we've written a tell-all article that uncovers everything you need to know about the new Consumer Duty regulations coming into effect this July.

Craig Tandy Director 23/03/2023
What is Consumer Duty market research and why is it important?

Consumer Duty market research evaluates the stated and genuine understanding of financial services communications using a testing framework. The research allows organisations to optimise communication strategies and ensures compliance with the Consumer Duty rules. Essentially the research answers the question – how do you prove to the FCA that your customers are getting the information they need, in a way they understand?

What is Consumer Duty?

The Consumer Duty sets the standard of care that firms should give to customers in retail financial markets. Introduced by the Financial Conduct Authority (FCA), it sets higher and clearer standards of consumer protection across the financial services sector. Businesses must put customers’ needs first by offering fair value and delivering good outcomes, especially for those in financial difficulty.

When will Consumer Duty come into force?

First proposed in May 2021, the Financial Conduct Authority (FCA) published the Consumer Duty rules in July 2022. UK financial service providers must apply the Duty to ‘open’ products and services from 31 July 2023. Rules for ‘closed’ products start on 31 July 2024.

What are the Consumer Duty requirements?

The Consumer Duty comprises three components:

  1. Consumer principle reflects and defines how firms should act when discussing and designing inclusive financial products and services.
  2. Crosscutting rules provide greater clarity on customer care expectations and help interpret the four outcomes (below). The rules require firms to:
    1. Act in good faith
    2. Avoid causing foreseeable harm
    3. Support customers in pursuing their financial objectives.
  3. Four good outcomes key in a business to consumer relationship:
    1. Products and services
    2. Price and value
    3. Consumer understanding
    4. Consumer support.

There’s an expectation across all outcomes that firms will:

  • Review and align all current approaches
  • Ensure they can evidence outcomes
  • Monitor outcomes on an ongoing basis
  • Remedy or mitigate any issues identified.
Why is Consumer Duty important?

Financial markets rely on consumer confidence and trust to succeed. The Consumer Duty insists customers receive the information needed to make good decisions and are sold products or services that offer the benefits they expect.

Consumer Duty aims to:

  • Avoid the presentation of information in a way that is misleading or difficult to understand, which makes it harder for consumers to make a timely and informed choice.
  • Prevent the sale of products or services to consumers that are not right for them or which don’t offer fair value or provide poor customer service and support.

Putting customers’ needs, and assessment of their genuine understanding of a product proposition, at the heart of any financial planning will inspire innovation within the industry, drive effective competition in the interest of consumers, and lead to fewer complaints.

Who does Consumer Duty affect?

 The Consumer Duty applies to the regulated and ancillary activities of all firms authorised under the Financial Services and Markets Act 2000 (FSMA), the Payment Services Regulations 2017 (PSRs) and E-money Regulations 2011 (EMRs), in respect of products and services for prospective and actual retail customers. It applies across all firms conducting regulated activities in the UK (and Gibraltar) – from high-level strategic planning to individual customer interactions.

Policy and guidance relating to Consumer Duty is also of interest to:

  • Consumer organisations and individual consumers
  • Industry groups and trade bodies
  • Policy makers and regulatory bodies
  • Industry experts and commentators
  • Academics and think tanks.
Does Consumer Duty apply to transactions prior to 31 July 2023?

The Consumer Duty is not retrospective. Actions taken before it comes into force are subject to the rules that applied at the time. However, the Duty does apply, on a forward-looking basis, to:

  • Existing products and services – still on sale to new customers or available for renewal by existing customers
  • Closed book products and services – those no longer marketed or on sale to new customers or available for renewal
How do you conduct Consumer Duty market research?

To evidence that your customers see and feel a positive experience, there are two main routes:

For most communication – and for robustness and speed – a quantitative approach will apply for:

  • Short letter and email wording
  • Charges or interest rate notices
  • Texts
  • Simple website screenshots
  • Short call centre scripts

If the communication format, product or action is complex, a qualitative approach will apply for:

  • Extended T&Cs
  • Long documents with detailed explanations or scripts
  • Where a decision to purchase is being made as a result
  • Where the call to action could lead to specific harm
  • Vulnerable customers.
Summary: Why Consumer Duty market research is important

Consumer Duty market research enables organisations to evaluate, optimise and deliver best practices in a way that proves they meet the new Consumer Duty requirements.

The Consumer Duty is underpinned by the concept of reasonableness. The rules and guidance must be interpreted in line with the standard that could reasonably be expected of a prudent firm. The UK economy relies on a healthy and successful financial services system, where firms can thrive, and consumers can make informed choices about financial products and services. Aligned to diversity and inclusive behaviours, the Consumer Duty sets higher standards in consumer protection in a changing and increasingly digital environment.

If you want to learn more about our Consumer Duty Communications Testing Framework and how it works, please download our overview and feel free to get in touch with us.

More from the series:

This is the first article in our series – ‘Navigating Consumer Duty: a Savanta series’, which aims to help financial services professionals prepare for the new FCA regulations coming into effect this year. We provide guidance and advice to help your business plan, test and evidence compliance to meet the new standards.

To access more articles from the series, click the links below:

Getting prepared for Consumer Duty

We offer two solutions that will help you plan and prepare for the new regulations coming into effect on 31st July 2023. Whether you require comprehensive communications testing, or an off-the-shelf solution that enables communications testing at scale – we have you covered. Download our spec sheets to find out more about our new offers.

Download the Consumer Duty Communications Testing Framework by completing the below form:

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