‘Financial services industry is not ready for Consumer Duty’ – says Ex Goldman Sachs banker

Rick Steves

“If firms are serious about communicating and engaging customers (which they have to be) they have to use the same intensity of approach as they do when selling. That means an approach that establishes what is the best communication channel for customers and then combining different channels to maximise engagement.”

With the FCA’s Consumer Duty coming into force on July 31st, the financial services industry is scrambling to meet these higher standards of consumer protection, including better support, and communications, as well as products and services that meet consumers’ needs and offer fair value.

The UK regulator has already warned commercial banks that they’ll have to prove their products and prices offer “fair value”, otherwise the FCA might take enforcement actions against them.

“Consumer Duty Regulation requires firms to maximise customer engagement”

Financial services firms may need to invest in technology and processes that allow them to comply with the regulations at a product level and meet the new standards, as many organizations “are far from ready to meet its requirements”, said Phil Shelley, Chairman of docStribute and ex-banker-turned tech reformer.

Phil Shelley worked in Corporate Broking and Equity Capital markets for 15 years, including at Goldman Sachs. He now leads docStribute, a UK-based RegTech company supporting financial service companies to comply with Consumer Duty by providing fast, secure communications that ensure customers see and, crucially, therefore understand correspondence sent to them.  Powered by Distributed Ledger Technology, docStribute uses immutable hyperlinks to allow companies to monitor whether documents have been opened and read by the customer.

The ex-Goldman Sachs banker says that, while a significant amount of focus and effort has been dedicated to ensuring that products are easy to understand, very little has been done in terms of ensuring that the information delivered is actually read by the customer.

Phil Shelley, Chairman of docStribute, stated: “Consumer Duty Regulation requires firms to maximise customer engagement. There has been a great deal of focus on what is communicated but much less on how it is communicated. It’s a scandal that so much of our financial information is not communicated properly in an age when banks have access to a plethora of various digital technology tools. If firms are serious about communicating and engaging customers (which they have to be) they have to use the same intensity of approach as they do when selling. That means an approach that establishes what is the best communication channel for customers and then combining different channels to maximise engagement.”

In his view, banking portals are an outdated and inefficient means of communication and banks can fulfill their Consumer Duty by implementing an omni-channel approach.

Phil Shelley also argues that banks can boost engagement with distributed ledger technology and a “click and confirm” approach, which promotes transparency and simplifies access to information and terms and conditions.

FCA wants fair-value retail banking products

Earlier this month, the FCA met with the UK’s largest banks to monitor the savings markets and the decisions made in regard to the rates offered by banks, the regulator announced. The goal was to challenge financial institutions where their decision-making has been slow, leading consumers to feel the squeeze from rising interest rates and prices. “It is more critical than ever that they are offered fair and competitive saving rates”, the FCA stated.

The FCA wants a competitive market with fair-value retail banking products and with banks helping consumers to access them. The FCA’s upcoming consumer duty is expected to set a new standard for firms from the end of July, including on savings rates. Ultimately, the financial watchdog expects the savings market to support savers to benefit from higher interest rates.

The FCA’s upcoming Consumer Duty introduces rules comprising:

  • A new Consumer Principle that requires firms to act to deliver good outcomes for retail customers.
  • Cross-cutting rules providing greater clarity on our expectations under the new Principle and helping firms interpret the four outcomes
  • Rules relating to the four outcomes we want to see under the Consumer Duty. These represent key elements of the firm-consumer relationship which are instrumental in helping to drive good outcomes for customers.

These outcomes relate to products and services, price and value, consumer understanding, and consumer support.

Firms will be required to consider the needs, characteristics, and objectives of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the customer journey. Firms will need to understand and evidence whether those outcomes are being met.

The rules and guidance will come into force on a phased basis:

  • for new and existing products or services that are open to sale or renewal the rules come into force on 31 July 2023
  • for closed products or services, the rules come into force on 31 July 2024

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