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The new Consumer Duty, open banking and a more diverse financial services sector are key to supporting better outcomes for consumers, a senior official at the UK’s financial services watchdog has said.
Many consumers are feeling the impact of the cost of living crisis and the financial services industry has a role to play in helping consumers manage their personal finances, said Sheldon Mills, executive director, consumers and competition, of the UK’s Financial Conduct Authority (FCA) during a speech to the Building Society’s Conference.
While discussing the FCA’s upcoming Consumer Duty, which aims to set higher expectations on the standards of care that firms provide to their customers, Mills in particular complimented building societies for their role in providing access to cash.
This is providing a lifeline for consumers and small businesses who rely on regular deposits and withdrawals to maintain their day-to-day budget.
Yet, the financial sector cannot afford to be complacent, he said. “It is essential that you monitor and test outcomes across the consumer lifecycle, with clear and timely communications, products and services that meet consumers’ needs; customer service that enables consumers to benefit from the products and services they buy; and pricing products and services that represent fair value for consumers.”
While addressing the conference, Mills asked: “Would I be happy to be treated in the way my firm treats its members? Would I recommend my firm’s products and services to my friends and family? Would it be easy for the typical consumer to understand whether my firm’s products and services suit their needs?”
Mills confirmed that the FCA will soon set out new clarifications regarding the Consumer Duty proposal, including how the regulator will supervise using its new tool.
The Consumer Duty has divided the financial services sector thus far.
UK Finance, a lobby group representing sectors including payments, said in its consultation response to the FCA that it supports the initiative and that, if done right, will enable the FCA to identify harmful practices more quickly and intervene before they become entrenched as market norms.
The trade association has also argued that market participants will need at least two years to prepare for the new compliance rules.
The Payments Association, meanwhile, has argued that an additional Consumer Duty would be unlikely to enhance the customer centricity of those payments firms that are not providing sufficient value, while piling on compliance and benchmarking costs to those that are already doing so.
The industry group also suggested that the Consumer Duty may not need to apply to some firms, due to the fact that they are not directly dealing with consumers.
Mills also talked up the benefits of open banking, suggesting that firms need to do more to unlock innovation here. “This can give consumers better tools to manage their personal finances, matching them with products and services suited to their needs,” he said.
“We are pleased that the government and other regulators are committed to supporting its continued growth,” he continued. “I encourage you to consider how your firm can benefit from open banking and unlock greater benefits to consumers.”
Creating representative working environment
Mills also suggested that more diverse and inclusive firms can help deliver better customer outcomes: “We expect to see greater diversity in terms of gender, ethnicity, social mobility and other characteristics.”
In late April, the FCA published a new policy decision regarding diversity and inclusion on company boards and executive management.
This includes new listing rules for publicly traded companies that require firms to include a statement in their annual financial report setting out whether they have met specific board diversity targets.
Rules are also being expanded so that reporting requirements cover the diversity policies of key board committees.
The FCA argues that setting targets on a so-called "comply or explain" basis for the representation of women and people from a minority ethnic background is designed to be a positive reporting benchmark to encourage progress.
It also serves as a starting point to encourage scrutiny and consideration of diversity and inclusion more broadly, both at senior levels of listed companies and throughout their businesses, the regulator has cautioned, meaning more rules are likely in the future.
It is also essential that firms ensure that they have a psychologically safe culture, said Mills, with this meaning that employees are listened to and their contributions valued.
“Few organisations are completely on top of this issue. We all certainly have more to do,” he said.
This statement was particularly timely given the newly unionised FCA went on strike last week.
Lasting change will only come through strong leadership, the tone from the top and a commitment to act, he said. “Ask yourselves whether you are representing the communities you serve. Are you addressing those issues of under-representation? Have you identified the barriers some people face in progressing their careers? What could you do to further empower employees?”
Recruitment and investment should be a key area of focus for firms, Mills recommended. “I also encourage you to consider how you are monitoring where you are now and where you need to get to. Data is key to achieving lasting change in building an inclusive culture.”
