Out-Law Analysis 6 min. read

Implementing the FCA Consumer Duty consumer support outcome

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The ‘consumer support outcome’, part of the UK Financial Conduct Authority’s (FCA) new Consumer Duty, breaks new ground, setting detailed rules and guidance for how financial services firms should design their customer journeys.

The outcome applies to all firms responsible for interacting directly with and providing support to retail customers and to all support provided to customers. Firms have until 31 July to ensure that the consumer support they provide for new and existing products or services meets customers’ needs. Unlike with the products and services and price and value outcomes, there are no interim milestones to meet on the road to 31 July, but the FCA expects firms to be ready with their customer support by this date.

Prioritising the consumer support outcome

After a study of implementation plans, the FCA commended firms that have prioritised and carried out risk-based reviews of customer journeys, as well as those that have identified and begun to implement specific improvements as a result of the review process. In a recent speech, the FCA’s executive director for consumers and competition, Sheldon Mills, told firms to tackle tasks that they most want to avoid first.

While he conceded that the FCA had “not been great at explaining what is in it for firms”, Mills explained that: “when you are engaging customers in a way that showcases how your product proposition is beneficial to them, it will have an impact on stakeholders and potentially on society at large.” He added that implementing the Consumer Duty should mean fewer complaints, fewer reactive rules down the line, lower costs, customer loyalty and more competition.

Jackson Venetia

Venetia Jackson

Senior Associate

The FCA intends to halt] ‘sludge practices’– tactics designed to retain customers or to avoid customers taking steps in relation to their product which may be to their benefit, but not necessarily to the firm’s benefit

The obligations under the consumer support outcome are to design support so that it meets the needs of retail customers, including those with characteristics of vulnerability; to ensure retail customers can use the product as they reasonably anticipate; to include appropriate ‘friction’ in the journey; and to ensure customers do not face unreasonable barriers in use of the product. Firms looking to focus reviewers’ attention when looking at customer journeys and customer support reviews will find the ‘rules of thumb’ the FCA set out in a recent podcast particularly helpful:

  • products should not cost more than consumers expected up front;
  • after-sale support should be as good as pre-sale support; and
  • customers should not be subjected to unreasonable exit fees, charges or other costs like delays, distress or inconvenience without good reason.

‘Appropriate friction’

The introduction of the consumer support outcome is, in part, intended to halt what the FCA call ‘sludge practices’ or ‘negative friction’ – tactics designed to retain customers or to avoid customers taking steps in relation to their product which may be to their benefit, but not necessarily to the firm’s benefit. The rules explain that these ‘unreasonable barriers’ can arise when consumers: make general enquiries or requests; amend or switch a product; transfer to a new product provider; access a benefit which the product is intended to provide; submit a claim; make a complaint; or cancel a contract.

The rules give examples of what “bad” would look like: unreasonable delays when consumers attempt to engage with the firm, including disproportionately longer call waiting times to cancel or make changes to an existing product than to purchase a new product; unreasonable delays to payments due to consumers after they have been agreed; unreasonable delays when requesting necessary information or evidence from consumers and when processing it.

The FCA has also singled out unreasonable additional costs as harmful, such as unreasonable exit fees. According to the FCA, an exit fee is more likely to be reasonable if it is commensurate with the costs incurred by the firm due to the consumer terminating the agreement early. Certain products may already be subject to rules and regulations on exit fees and other charges.

The regulator has made it clear that ‘sludge’ is not necessarily a deliberate decision, but can arise through inadequate attention. At the same time, of course, ‘positive friction’ can support good outcomes by nudging consumers to make better decisions. However, the FCA expects firms to look at their processes and consider whether any friction that is present is there to protect customers from harm or just to make their lives more difficult. Crucially, this review must be objective. Firms cannot rely on customer feedback that suggests risk warnings are unnecessarily delaying their customer journey in order to provide a smooth checkout for a complex or risky product.

The FCA expects firms to introduce ‘appropriate friction’ into customer journeys to mitigate the risk of harm and give consumers sufficient opportunity to understand and assess their options and risks. Appropriate friction could include steps designed to prevent fraud or to make sure customers are aware of the consequences of cancelling a contract. This is clearly an area that the FCA might look to supervise and enforce in the future. The regulator recommends that firms consider slowing the sales process down or requiring that a financial adviser is used for certain products - especially when a high-risk investment product is being sold.

Successful implementation

Just as the FCA aspires to be a data-led regulator, data will be key to successful implementation of the Duty. Identification of key metrics and clear record-keeping will assist in pinpointing and overcoming barriers to good customer outcomes – as well as demonstrating compliance to the regulator.

The FCA has made clear that firms need to be able to monitor for intentional and unintentional unreasonable barriers that consumers may face when progressing their objectives. It suggests that firms consider metrics such as customer behaviour and feedback, query response times, call waiting times and abandonment rates. While firms would no doubt welcome some specific expectations from the FCA, such as how long is too long to wait for support, the Duty does not set rigid standards of how long a customer should wait to talk to an agent, how long a call should last, or how long an issue should take to be resolved. Instead, it will be for firms to define what good looks like for the support for their products and to identify how they are going to monitor this. It is always important to recall that the starting point is the good outcome, not what data a firm is already collecting.

The support outcome does not require uniformity in all aspects. Some resource prioritisation can be expected as long as firms continue to meet retail customers’ needs: a delay that is reasonable for a customer looking to amend a standing order may not be reasonable for a customer trying to disable a credit card that has been stolen.

Vulnerable customers

Firms must also be able to meet the needs of vulnerable customers and will have already laid the groundwork for this by implementing the FCA’s guidance on vulnerable customers. Different vulnerabilities can make certain channels of support unsuitable, and the FCA has clarified that it does not always expect firms to provide support via each individual customer’s preferred channel. Instead, firms will usually need to be able to provide at least some support through different channels, or by adapting their standard approach.

Where a firm offers more limited support channels – for example a digital-only support offering – the FCA will expect it to clearly communicate this to consumers before they buy a product. Such firms will have to deal effectively with non-standard issues such as security or fraud concerns, technical issues, more complex customer journeys and customers who find themselves in vulnerable circumstances.

Of course, with the growth of the internet and online only business models, not all firms have business models that include a full-service proposition that is able to respond in every customer’s preferred method. The finalised guidance provides welcome clarity for firms that they do not have to create a telephone helpline or face-to-face support if they are an online-only business. But firms should still be mindful that they do need to be prepared to flex for customers in particular difficulties.

If a more limited support offering no longer works for a newly vulnerable customer, the FCA will expect that customer to be supported, including in exiting where appropriate. Firms should also be mindful of their obligations under the 2010 Equality Act to make reasonable adjustments for disabled customers.

Third-party compliance with the Duty

The expectations of the Duty do not necessarily require direct contact between the customer and the regulated firm. Where the customer is using a representative who is not a regulated firm, a firm must provide the same level of support to the representative. Where the firm has outsourced its customer support, the rules make it clear the support outcome still applies to the firm.  This is further reinforced in the FCA’s finalised guidance, which reminds firms that they are not able to outsource their obligation to comply with regulations and they remain responsible for ensuring the third party they have outsourced to provides support in compliance with the Duty.

Co-written by Daniela Ivanova of Pinsent Masons.

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