Banks in the UK have just two months to prepare for the incoming Consumer Duty, with some prominent bankers suggesting the new regulatory standards will prompt widespread changes in the industry.
The Financial Conduct Authority’s (FCA) flagship Consumer Duty, which will come into effect on 31 July, requires firms to deliver good outcomes for retail customers in regard to quality and price of goods and services. It has been described as one of the biggest regulatory shakeups in years.
HSBC’s head of cards and consumer lending Madhu Kejriwal said “it is different from other regulatory mandates, which are a little bit more prescriptive”.
As a result, Kejriwal said it has forced banks to take a “deep look into our own practices, starting from product design and product governance”.
For example, Kejriwal suggested that banks would have to reconsider many of the legalistic aspects of financial products, such as the terms and conditions. He said banks need to ask “can a person with average reading ability really make sense of it? Or is it too legalistic?”
Banks have been mobilising significant resources to implement the rules, including significant IT system updates, staff training and reviews of current and ‘closed book’ products.
But more fundamentally, Kejriwal suggested the Consumer Duty means banks will have to rethink products on “an end to end customer standpoint”.
“We are looking to enhance all aspects of product design, product governance, and customer comms to make sure that we can aid good customer outcomes,” he concluded.
Fellow high street bank Natwest said it was “supportive of moving from prescriptive consumer conduct rules to principles-based outcomes”.
It said this shift will “place the onus on firms to ensure their customers are making financial decisions best suited to their needs”.
A spokesperson for industry body UK Finance pointed out that the FCA had “recognised the industry’s efforts in preparing for the change, stating that firms are carefully considering both price and value requirements and the shift in focus to consumer outcomes”.
What is the Consumer Duty?
The Consumer Duty will see the introduction of a new ‘consumer principle’, which requires firms to deliver “good outcomes for retail customers”, shifting more responsibility onto firms.
The new principle aims to ensure firms deliver good outcomes for consumers on the quality and price of products and services, and make sure a higher standard of consumer support is provided.
Banks say they have been working closely with the Financial Conduct Authority (FCA) both in the creation of the rules and their implementation.
The move marks a shift under the leadership of chief Nikhil Rathi to ramp up protections of consumers after the regulator was criticised following the collapse of London Capital and Finance and Neil Woodford’s investment fund.
What has the response been?
The Consumer Duty is much less prescriptive than normal regulations. Some financial firms have expressed concerns that the rules are excessively vague and could prompt a wave of opportunistic lawsuits.
Others have complained about the administrative burden that the rules place on them. For larger firms, several hundred products will have to be reviewed.
City minister Andrew Griffith reportedly slammed the incoming regulations earlier this year, arguing that it imposed burdens on firms just as the government was trying to relax rules to capitalise on post-Brexit opportunities.
Despite the scale of the shift, the FCA has called out the lack of preparedness demonstrated by some companies and warned they will face action.
Earlier this month, the FCA’s consumer chief Sheldon Mills said: “We will prioritise the most serious breaches and act swiftly and assertively where we find evidence of harm or risk of harm to consumers.”