Microsite Alphabet Partner: Consumer Duty
Introduction to Consumer Duty
The Consumer Duty provides clear standards of consumer protection across financial services and requires firms to empower and protect customers to achieve good outcomes. This means that we need to act in good faith towards our customers and avoid causing them foreseeable harm.
The Duty applies to all firms with a key role in delivering retail customer outcomes, including those with no direct customer relationship. It is essential for firms to work together across distribution chains to deliver good outcomes for the end retail customer.
Consumer Duty introduces an additional Principle (Principle 12), which requires firms to act to deliver good outcomes for retail customers.
It also includes 4 Outcomes which sets the expectations for the relationship that we have with our customers:
- Ensure customers receive communications they can understand
- Provide products and services that meet their needs
- Provide products that offer fair value,
- Ensure our customers receive the support they need throughout their relationship with us
What does this mean for you?
Every firm has a responsibility to ensure that it has a plan for how it will meet the requirements by the stipulated deadlines.
This should be viewed as an opportunity to drive positive change and to better understand and support our customers in building long and trusted relationships. It’s also an opportunity to revisit processes to ensure that we can evidence that our customers are receiving good outcomes and the support that they require. These outcomes must be integrated into long-term, forward-thinking strategies where potential harm to customers can be anticipated and avoided. Processes must be tested and the data used as evidence in compliance and, where needed, adaptation to these practices and processes made.
Target Market and Fair Value
In compliance with FCA rules under Consumer Duty, and as a Product Manufacturer, we are required to have clear processes in place to ensure a thorough approach to the development, approval, monitoring and regular review of our products. Included in these processes is our obligation to ensure that our products provide fair value to the customers within our defined target markets (including those who may show characteristics of vulnerability).
We have published our Target Market and Fair Value documents, the purpose of which is to provide information on our intended target market for each of our products as well as the outcome of our fair value assessment.
The FCA’s Consumer Duty principle comes into force on 31 July 2023. The Consumer Duty provides clear standards of consumer protection across financial services and requires firms to empower and protect customers to achieve good outcomes. This means that we need to act in good faith towards our customers and avoid causing them foreseeable harm.
As part of the Products and Services, and Price and Value outcomes of Consumer Duty, we have created we have created Target Market & Fair Value documents (see below).
Your feedback is important to us
We have set up a feedback form, which includes questions in relation to the TMFV and obligations.
It will take approximately 10 minutes of your time depending on the level of feedback you are providing.
Target Market & Fair Value Training Video
Documents to download
- Target Market & Fair Value Guidance Document
- Business Contract Hire Target Market & Fair Value Document
- Personal Contract Hire Target Market & Fair Value Document
- Finance Lease Target Market & Fair Value Document
- Contract Purchase Target Market & Fair Value Document
- Maintenance Target Market & Fair Value Document
Consumer Duty Toolkit
This section is designed to be the "go to" for tools to support the implementation and understanding of Consumer Duty within your business.
Here you can find links to resources that are available on the FCA website as well as tools and information we have available.
If you require any additional information, please feel free to contact us here.
Helpful links to sections on the FCA's website
FCA Podcasts relating to the four outcomes
Implementation Plan Resources
The FCA wanted to ensure firms made full use of the implementation period to embed the Consumer Duty effectively with details on how they were going to achieve this by 31 July 2023 and beyond this date.
Here you will find a template you can use to complete key tasks that apply to your business and some guidance notes following a review the FCA conducted of Implementation Plans.
Consumer Duty Implementation Plan Notes
Consumer Duty Implementation Plan Template
Culture and Governance
What does the FCA say?
"The Duty sets a higher expectation for the standard of care that firms give customers. For many firms, this will require a significant shift in both culture and behaviour, so they consistently focus on customer outcomes, and put consumers in a position where they can make effective decisions."
FCA Expectations and what this means for you?
- Ensure that you have nominated your Consumer Duty Champion.
- Think about what training Senior Management Functions, Certified Individuals and other colleagues will need so that everyone understands their specific roles in delivering Consumer Duty
- Make sure your remuneration and incentive structures promote the right behaviour in your staff and delivers good customer outcomes.
- Work out what changes are needed to your monitoring activities, including what additional evidence you will need to show compliance
- Revisit your policies and procedures to ensure that they are delivering good outcomes for customers
- Consider any other ways in which your culture and governance needs to change to support the delivery of good customer outcomes
Individual Conduct rules
1. You must act with integrity.
2. You must act with due skill, care and diligence.
3. You must be open and cooperative with the FCA, the PRA and other regulators.
4. You must pay due regard to the interests of customers and treat them fairly.
5. You must observe proper standards of market conduct.
The Consumer Duty includes a sixth individual Conduct Rule required by all staff (except ancillary staff):
6. You must ‘act to deliver good outcomes for retail customers’.
Senior Manager Functions (SMFs) have four additional conduct rules:
1. You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.
2. You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system.
3. You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively.
4. You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice
Steps we've taken
Using a team of experts from across our business, we have analysed the ‘Culture, Governance and Accountability’ section of the FCA’s non handbook guidance. These focus around the four drivers for culture and we are taking some steps outlined below:
FAQs
Culture is the set of beliefs and behaviours that guide how a company’s management and employees interact to ensure that it operates in the right way to achieve good outcomes for customers.
Governance is the structure of rules, practices, and processes used to direct and manage a company.
This can be found in section 10 of the Final non-Handbook Guidance for firms on the Consumer Duty.
TCF ensured that firms had the right infrastructure, culture and framework in place to promote the fair treatment of customers and to show “that fair treatment of customers is at the heart of their business model”.
Consumer Duty differs in that it’s not about showing the FCA that processes and frameworks are in place but proving how effective they are in delivering good outcomes for customers.
A firm’s board, or equivalent governing body, should review and approve an assessment of whether the firm is delivering good outcomes for its customers which are consistent with the Duty, at least annually.
This should include such things as – monitoring activities, actions taken and firm’s business strategy. This will form part of the evidence the FCA use to assess compliance with the Duty and would expect the data that sits behind it be available on request.
Please refer to FCA webinars, linked below.
Consumer Understanding
What does the FCA say?
"We want customers to be given the information they need, at the right time, and presented in a way they can understand. This is an integral part of firms creating an environment in which customers can pursue their financial objectives."
FCA Expectations and what this means for you?
Firms should "put themselves in their customers’ shoes" when considering whether their communications equip customers with the right information, at the right time, to understand the product or service in question and make effective decisions. An effective decision will usually be one that maximises the likelihood of a customer achieving a good outcome.
Communications should be understandable by the intended recipients and enable them to evaluate their options by assessing the benefits, risks and costs associated with those options, and how those options relate to their needs and financial objectives.
- Layering: This is where key information is provided upfront with cross-references or links to further details and can be particularly effective online.
- Engaging: Communications should be designed in a way that encourages consumers to engage with them.
- Relevant: Firms should consider the appropriate level of detail for each communication.
- Simple: Effective communications will present information in a logical manner.
- Well timed: Firms should communicate with customers in a timely manner and at appropriate touch points throughout the product lifecycle.
Actions to take
Think about how you communicate with your customers, is it clear and transparent? Make sure you review your communications that a customer receives, for example; website content, letters or guidance documents.
Work out what changes are needed to your monitoring activities, including what additional evidence you will need to show compliance for example, enhancing Quality Assurance (QA) to equip the team with the skills to test the effectiveness of communications customers receive or adding additional questions to surveys.
Have a think about your vulnerable customer processes, are they clear for your staff to follow, do your staff know how to escalate queries so that a resolution can be achieved in a reasonable amount of time.
Consider whether other parties you work with in the distribution chain are aware of their responsibilities under Consumer Duty.
Revisit your policies and procedures to ensure that they are delivering good outcomes for customers.
Review current data points against the FCA guidance and implement in the existing reports.
Themes
Frequently Asked Questions
Refer to guidance in section 8.42
The guidance sets out factors to consider when testing consumer understanding of a communication for example, the purpose, the timing and frequency, any vulnerabilities and scope for any misunderstanding.
The FCA acknowledges that it’s unrealistic to expect that every communication be tailored to meet the needs of each customer. They do, however, expect firms to understand their customers and consider how best to engage with them on information that’s relevant to them, rather than simply using generic communications for operational efficiency.
Please refer to FCA webinars, linked here. Or click below to listen to the FCA Podcasts.
Consumer Support
What does the FCA say?
"We expect firms to provide support that meets their customers’ needs. The support firms provide should enable consumers to realise the benefits of the products and services they buy, pursue their financial objectives and ensure that they can act in their own interests."
FCA Expectations and what this means for you?
The FCA expect firms to provide support that meets their customers’ needs. The support firms provide should enable consumers to realise the benefits of the products and services they buy, pursue their financial objectives and ensure that they can act in their own interests. They adopt a flexible approach when dealing with customers with characteristics of vulnerability.
Businesses should ensure there is appropriate "friction" in their customer journeys to support their customers in making good decisions without creating unnecessary barriers.
Businesses need to regularly monitor the customer support they provide to make sure there are no systemic issues that create unreasonable barriers or costs for customers.
Themes
Actions to take
Work out what changes are needed to your monitoring activities, including what additional evidence you will need to show compliance, including what additional evidence you will need to show compliance for example, enhancing Quality Assurance (QA) to equip the team with the skills to test the support levels provided to customers.
Think about what training your staff will need so that everyone understands their specific roles in delivering Consumer Duty especially when it comes to supporting a customer.
Have a think about your vulnerable customer processes, are they clear for your staff to follow, do your staff know how to escalate queries so that a resolution can be achieved in a reasonable amount of time.
Consider whether other parties you work with in the distribution chain are aware of their responsibilities under Consumer Duty.
Revisit your policies and procedures to ensure that they are delivering good outcomes for customers.
Frequently Asked Questions
Sludge: Sludge refers to any unnecessary or excessive steps that prevent consumers from making informed decisions about financial products or services. This could include complicated application processes, hidden fees or charges, or confusing language in contracts or agreements.
Nudge: Nudge refers to any measures taken by financial services providers to encourage consumers to make choices that are in their best interests. These measures could include providing clear and simple information about products and services, offering guidance or advice, or making it easier for consumers to compare different options.
Friction: Friction refers to any obstacles or challenges that make it difficult for consumers to switch to a different financial product or service. This could include high exit fees, long notice periods, or other barriers that discourage consumers from making changes. In some circumstances, friction points or nudges can help to mitigate the risk of consumer harm and support good outcomes, but they can also create unreasonable barriers by making it more difficult for customers to act in their interests.
This is where businesses include friction in their customer journeys that discourage customers from making decisions in their own interest, by doing things they might prefer they didn’t, e.g. designing a long-winded complaints process with lots of extra steps which may deter a customer from proceeding with the cancelation. These types of practices hinder a customers’ ability to achieve good outcomes.
The FCA don’t prescribe which channels of support a business must offer and don’t necessarily expect that support will always be provided via each individual customer’s preferred channel. The critical point is to ensure that support is always effective in meeting the needs of customers. Firms need to review which channels they are using and make any adaptions to ensure that they can deal effectively with any non-standard requests and with customers who may find themselves in vulnerable circumstances.
Refer to guidance in section 9.53
Monitoring how we interact directly with our customers is key. There are many different data sources that cover this area e.g. Customer behaviour data, the way they use a product, complaints, average call waiting times, call abandon rates, listening exercises, satisfaction surveys, amongst others.
Please refer to FCA webinars, linked here. Or click the link below to listen to the FCA podcasts.
Products and Services
What does the FCA say?
‘Consumers can only pursue their financial objectives and avoid foreseeable harm when products and services are fit for purpose. Firms acting in good faith should design and distribute products and services to meet this aim’.
FCA Expectations and what it means for you?
The FCA sets out a range of requirements, including the need for firms to:
- Ensure that the design of the product or service meets the needs, characteristics and objectives of customers in the identified target market
- Ensure that the intended distribution strategy for the product or service is appropriate for the target market
- Carry out regular reviews to ensure that the product or service continues to meet the needs, characteristics and objectives of the target market
Actions to take
Once our Target Market and Fair Value (TMFV) Assessment has been received, you must:
- Understand the characteristics of the product.
- Identify the intended distribution strategy.
- Understand the identified target market.
- Consider the needs, characteristics and objectives of any vulnerable customers.
- Distribute the product in accordance with the needs, characteristics and objectives of the target market.
- Factor in any other fees, charges or other distributor remuneration which may be paid within the distribution chain for this product, and which may impact the overall value of the product to the customer.
- Not use the Target Market and Fair Value Assessment as a marketing tool. It is intended for distributors’ use only.
FAQs
Once the TMFV has been reviewed, a distributor should consider their distribution arrangements to ensure they are appropriate and up-to-date, and to ensure the products and services are distributed to customers within the target market.
Price and Value
What does the FCA say?
‘Retail customers experience harm where they don’t get value for their money. A lack of fair value is unlikely to be consistent with customers realising their financial objectives and firms cannot act in good faith if they are knowingly manufacturing or distributing poor value products or services.’
FCA Expectations and what it means for you?
Fair Value is more than just price. Value is shown in the suitability of product features that don’t lead to customer harm or frustration, as well as in good communication and customer support.
This outcome states that:
- All consumers must receive fair value for the services they receive.
- A firm must assess all products and services offered to ensure they are fit for purpose and represent fair value.
- A firm must complete a value assessment to prove that the relationship between price paid, and benefits received, is reasonable.
- All firms in the distribution chain are responsible for the value of the prices that they control
Actions to take
Distributors must:
- Review the TMFV to understand the benefits to the target market prior to distribution
- Understand all product benefits and limitations
- Ensure that any product limitations or other charges added along the distribution line don’t result in unfair value
- Ensure their own charges for distributing the product or service represent fair value
FAQs
Once the TMFV has been reviewed, a distributor should consider their distribution arrangements to ensure they are appropriate and up-to-date, and to ensure the products and services are distributed to customers within the target market.
Vulnerable Customers
What does the FCA say?
‘Our Principles for Businesses' require firms to treat customers fairly, and we expect firms to exercise particular care with vulnerable consumers.
When consumers are in vulnerable circumstances, it may affect the way they engage with financial services. Vulnerable consumers may be significantly less able to represent their own interests, they may have different needs and may have more behavioural biases that negatively affect their decision making.
The effect of non-standard needs, together with behavioural biases, could be exacerbated by how firms behave.
Protecting the interests of consumers in vulnerable circumstances is a key focus for us.’
FCA Expectations and what this means for you?
The FCA defines a vulnerable customer as someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.
Anyone can find themselves in vulnerable circumstances at any time and there are 4 key drivers of vulnerability in financial services:
- Health
- Life events
- Capability
- Resilience
Vulnerable customers must experience outcomes as good as those for other customers, and receive consistently fair treatment. To make sure this happens, firms must be able to demonstrate how their business model, the actions they take, and their culture ensure the fair treatment of all customers.
Vulnerable customers may be more likely to have additional or different needs which, if not met by firms, could limit their ability to make decisions or to represent their own interests. The level of care that is appropriate for these consumers may be different from that for others and firms can prevent harm to these customers’ by taking appropriate action to respond effectively to their needs.
The FCA has published guidance which highlights the actions firms should take to understand the needs of vulnerable customers and ensure they are treated fairly. The guidance can be found here.
Actions to take
- Understand the needs of their target market/customer base.
- Ensure staff can recognise and respond to the needs of vulnerable customers.
- Respond to customer needs through customer service and product design and communications.
- Monitor whether they are meeting the needs of vulnerable customers and take action.
- We will monitor how firms are treating vulnerable customers and hold them to account.
- Firms can expect to be asked to demonstrate how their business model, their culture, and the actions they have taken ensure the fair treatment of all customers, including vulnerable customers.
Data and Monitoring
What does the FCA say?
“A key part of the Duty is that firms assess, test, understand and are able to evidence the outcomes their customers are receiving. Without this, it will be impossible for firms to know that their products and services are working as they and their customers would have expected and in a way that is consistent with the Duty.
FCA Expectations and what is means for you?
You will need to identify relevant sources of data to enable you to assess whether the outcomes that your customers are experiencing are consistent with your obligations under Consumer Duty. This data will need to be collected, reviewed and where necessary, be acted on to ensure good customer outcomes.
This will serve as evidence of your monitoring and assessment of these outcomes and any resulting action, on request from the FCA.
Possible data to use
Types of information you may want to collect include:
Business persistence: analysis of customer retention records – e.g. claims and cancellation rates and details of why customers leave. This may flag where poor treatment is contributing to high customer turnover.
Distribution of products/pricing and fees and charges: review of whether certain groups of customers are more likely to buy certain products, incur particular fees and charges, or appear to be receiving outcomes that are not as good as other groups of customers.
Behavioural insights: customer interactions and drop off rates; use of different communications channels including digital; consumer testing of user interfaces and design such as websites and apps, and the results of such testing. This may flag where firms need to improve policies, processes and systems (e.g. where there are barriers to consumer engagement or understanding).
Training and competence records: analysis of records of staff training, including remedial actions where staff knowledge or actions were found to be below expectations.
File reviews: reviewing customer files and monitoring calls to check for errors and assess if customers received good outcomes (this is particularly useful for sales processes).
Customer feedback: using formal and informal feedback from customers to identify trends and areas for improvement (e.g. complaints and comments made to the firm but also comments and complaints on social media).
Numbers of complaints: trends in numbers of complaints involving poor customer outcomes throughout the customer-firm relationship
Complaints root cause analysis: investigating complaints fully to understand the cause of customer complaints, not just dealing with the symptoms.
Results of the regular testing and monitoring required under the outcome rules: many of the four outcomes rules include requirements for firms to monitor and review over time. The results of these reviews, together with any action taken would be relevant for consideration of whether the outcomes are being followed.
Feedback from other parties in the distribution chain: such as manufacturers and distributors sharing information about the way in which products are sold, and the extent to which actual sales matched the target market.
Compliance reports: review compliance reports to check if standards are being met in terms of good outcomes for consumers.
Researching or testing customer experiences: through processes such as mystery shopping, auditing customer journeys, focus groups and deep dives, or working with consumer organisations to gain insight into the needs and experiences of consumers.
Allowing staff to feed back honestly when they think products or services, or the processes used to deliver them, could be improved.
Reviewing whether processes and policies are effective in delivering good outcomes for customers.
Drawing on external sources of data about consumer outcomes. The Financial Lives survey, for example, contains granular data about the financial lives of different groups.