Brokers need to make key considerations ahead of Consumer Duty deadline – Krampah-Williams
The final Consumer Duty guidance was issued by the Financial Conduct Authority (FCA) in July 2022. Consumer Duty represents what the regulator terms a “paradigm shift” in its expectations of firms. It introduces a new Consumer Principle, which requires firms “to act to deliver good outcomes for retail customers”.
Firms were required to implement the rules for open products and services by the end of July 2023, and we are now approaching the next and final deadline for closed books of business, which needs to be implemented by the end of July 2024.
At Santander, we’ve always had a focus on helping our customers prosper, and have taken this opportunity to review our end-to-end processes to ensure we continue to do just that, in the most effective way possible.
Despite the deadline, Consumer Duty is very much a permanent change rather than a one-off exercise, and the move to good outcomes, rather than fair outcomes, is a cultural one.
There are two themes overarching Consumer Duty, which are governance and culture. Governance – your systems and controls – and culture – what happens if no-one is looking, or the habitual behaviours and mindsets.
Regarding the desired outcome for culture and governance, the FCA has said: “We want consumers to have confidence in retail financial services markets, with healthy competition based on high standards and firms focused on delivering good customer outcomes.”
Simplification of fees, communications and bonus structures underway
Financial services providers have been working hard to address any issues identified through reviews in the lead-up to Consumer Duty deadlines.
We have seen the distribution of fair value assessments, detailed product information documents and target market information.
Confirmation of a fair exchange of value between customers and providers is a critical part of the Consumer Duty principles. As a result, we have also seen a simplification of fees, customer communications, changes in bonus structures while also putting a stronger focus on vulnerability.
In terms of networks and brokers, we have already seen a lot of work done in this space to review advice practices, customer communications, fee structures and a greater focus on vulnerable customers.
Closed book customers have ‘different issues and needs’
Provision of good outcomes and fair value applies to advisers and firms as well as financial services companies. Customers with older off-sale products may have different issues and needs when they want to amend their loans, port, redeem or complete a contract variation. As a result, this may require additional non-standard advice.
In the lead up to the deadline, Santander will be reviewing off-sale products such as Flexi and Help to Buy. Broker firms/networks will need to consider lifetime customer fee arrangements and any products or services they have offered their customers in the past.
The FCA published an article in February 2024 citing some of the good practices and areas of development it has noticed since the implementation of Consumer Duty. For brokers, some key things to consider are:
1. Culture, governance and monitoring
Review advice practices and systems and controls. A greater use of technology may help to facilitate this and remove sludge practices. Removing sludge practices could look like removing (intentional or not) extra requirements that could put off a customer complaining or changing a product. Enhanced staff training may help ensure everyone in the business is focused on good customer outcomes.
2. Customers in vulnerable circumstances
Understand how to best manage vulnerable customers and how to report this information to financial services providers and to internal teams to remove the need for the customer to repeatedly disclose.
3. Products and services
Share relevant information across distribution channels – solicitors, valuers, lenders, insurance providers, etc.
4. Price and value
If not already done, you should think about reviewing fee structures to ensure that they provide fair value and customers are not charged disproportionately to another in similar circumstances.
5. Consumer understanding
Review customer documentation and advice practices to ensure customers will easily be able to digest the information provided.
6. Consumer support
Staff training to enhance their ability to have complex conversations with customers.
‘Mortgage market has always been very resilient’
While this is not an exhaustive list, it should give you a starting point for considerations for the next deadline.
It’s been an intense period for changes (pricing, changes to fees and charges, etc). These significant and frequent changes further support the needs for financial services relationships, website content and the value of advice.
The mortgage market has always been very resilient, and even through inflationary, geopolitical and regulatory changes we still provide the best possible service to our clients, and we are able to navigate these periods and come out the other end stronger than we were.
