It’s been a year since the Financial Conduct Authority (FCA) introduced the Consumer Duty, a regulation aimed at reshaping the way financial services firms operate and engage with their customers. With its focus on delivering better outcomes for consumers, the Duty has required firms to rethink their practices, ensuring that their services are fair, transparent, and supportive.
The Consumer Duty set out to create a framework where firms must consistently act in the best interest of their customers. Over the past 12 months, financial institutions have been adjusting their operations to meet these new standards, with varying degrees of progress.
One of the most noticeable changes has been in how firms respond to changes in the market. For instance, in response to a series of base rate increases, many firms were quick to adjust the interest rates offered on savings accounts. Between July 2023 and February 2024, while the base rate increased by 0.25 percentage points, firms on average raised rates for easy access deposits by 0.45 percentage points. This adjustment is estimated to return approximately £4 billion annually in additional interest payments to consumers, which could be used for savings, investment, or debt repayment.
Another area of change has been in the structure of financial products. The FCA’s scrutiny has led firms to reassess the value they offer, particularly in areas like GAP insurance. Firms are now revising their commission structures, which the FCA anticipates will save customers around £70 million.
Beyond financial adjustments, the Consumer Duty has driven cultural changes within firms. Many have started to develop new data and metrics to better understand their customer base, particularly those who fall outside of their target market. This data-driven approach allows firms to proactively address potential issues before they escalate.
In some cases, firms have overhauled their business models entirely. For example, a large financial advice firm simplified and unbundled its charging structure, improving transparency and comparability for clients. This has also led to the removal of early withdrawal charges for certain products.
Another change has been in how firms handle customer vulnerabilities. Many firms are now adopting a ‘tell us once’ approach, where customer information is captured and recorded more efficiently, ensuring that vulnerable customers receive the necessary support without having to repeatedly disclose their circumstances.
While the FCA is encouraged by the progress made so far, the implementation of the Consumer Duty is far from complete. The next phase involves addressing the challenges that have surfaced over the past year, particularly around price and value.
Price and value remain critical focal points, as firms must ensure that the products and services they offer are fairly priced in relation to the benefits provided. The FCA’s approach will continue to be holistic, considering not just the price but also the quality of service and the clarity of communication with customers.
As the financial services industry continues to evolve, particularly with technological advancements like AI, the Consumer Duty’s outcomes-based approach is designed to remain flexible and adaptive. The FCA will continue to monitor how firms are embedding these principles into their operations, ensuring that consumer interests are protected as the market changes.
