Consumer responsibilities have been two years – are we closer to adjusting the changes that regulators want to see? – Mortgage Strategy
July 2023 marks the second anniversary of FCA’s Tentpole regulations, aiming to set higher standards for financial services and drive better customer outcomes.
Two years later, some companies have seized the opportunity to maintain a closer relationship with their customers and have made good progress to better understand their needs and tailoring services to deliver better results.
By contrast, whether it is complying with obligations and mastering principle-based regulation or embedding these principles into broader expectations of business culture, governance and leadership, there is still the companies behind the curve. Complacent remains a big problem as companies ignore the steps required to meet FCA expectations.
Consumer responsibility remains the cornerstone of the FCA’s overall regulatory approach. Even with deregulation measures, the FCA sees consumer responsibilities as the primary way to drive growth and innovation in the industry. Therefore, whether the company likes it or not, the consumer’s responsibilities will remain here. How can we achieve the changes that regulators want to see within our two years?
Customer vulnerability
One of the biggest areas of improvement is customer vulnerability. FCA has identified in its recent multi-company vulnerability review that companies are still unable to effectively monitor or take action on the outcomes of vulnerable customers. It’s no surprise – identifying vulnerable customers has long been considered the most difficult aspect of consumer responsibilities.
Although we are all vulnerable at some point in our lives, many companies still report few or zero vulnerable customers. This is unrealistic, especially when the FCA’s Financial Life Survey found that 49% of UK adults have one or more vulnerability characteristics.
Part of the problem is the reactive approach of many companies – waiting for consumers to tell them about their vulnerability. Or focus only on a portion of its customer base or a channel, such as a claim or complaint.
While this is a great starting point, it doesn’t provide the company with all the pictures or something like that. To achieve this true proportion, the FCA repeatedly stated that businesses need to “actively interact with consumers.” For many, this is still a real stumbling block.
Lack of quality data
Whether it is ignorance or fragmented approaches to participation, companies inevitably become poor – unable to prove fair value, good results or more broadly adhere to consumer responsibilities. The FCA saw examples of companies repackaging existing data without really considering the information needed to really understand the results.
Our experience is direct with all Using vulnerability assessments, companies can obtain powerful data not only to identify their vulnerable customers, but also to monitor and report the results customers receive. Crucially, these evaluation methods must be consistent and objective to produce the required data quality.
As data standards improve, we can look at data sharing throughout the distribution chain – this will bring new levels of efficiency to consumer responsibilities and let us really put our customers first. The entire process will eventually join – for consumers, they share their information at once for all parties to act in a consistent way.
Technology available
Regulators know that companies face a difficult task, which is why it has long advocated the adoption of technology to help meet the requirements. Instead of adding non-descriptive ticking boxes indoors or spending time and money developing systems in-house, companies can overcome these key challenges using one of the many digital platforms already available. In the two years of GST, these systems not only continue to get better, but can also be ahead of what is possible.
Technology is in bringing consistency into assessments and plays a crucial role in the way information is collected, standardized and recorded. It is equally important to objectivity; this is not achieved through human decision-making – both well-trained, consultants, agents and frontline workers will always be subjective.
Technology must become a priority for financial services companies in the third year. Not only does it increase efficiency, it also brings consistency, scale and cost savings that cannot be achieved through manual methods or training.
future
Given that the government’s recent focus is on deregulation to stimulate economic growth, the responsibility of consumers has found its future in the focus. The Prime Minister’s recent luxury home speech has disconnected some in the industry from contextual comments and believes that it is all in line with the responsibility of consumers.
The shift to principle-based regulation and shift to outcomes is a major move. It ensures consumer protection while also providing flexibility for growth. It’s a step forward, but it’s almost the company wants to go back to the old normative tick box regulations.
Companies that have not yet accepted consumer obligations and vulnerability management have underestimated the value and growth opportunities arising from increasing consumer trust in financial services. So far, most of the conversations have not been about carrots, but about sticks—to no avail.
In the corner of the market, we see tangible examples of providing real business benefits to companies – not only offering more personalized services – but also leveraging the vulnerability data they generate to make better lending decisions and ultimately launch new and highly targeted products.
There will always be those who lament the regulations and hope to cut them down on the traditional Chinese tape. I firmly believe that as consumer obligations continue to evolve, we see more examples of commercial gains and better customer outcomes – once they realize what they are missing, the noble denier will retire or be late.
Andrew Gething is the managing director of Morgan Ash
