Rethinking the path to compliance: the FCA's new Consumer Duty

Customer-first as an FCA mandate

Andrew Stevens | Monday, Feb 6th 2023
mobile phone with regulatory icons

For years, companies across the world have been adding customer-first messages to their official mission statements and strategies. But for as long as they have been adding those messages, many have been ignoring them – incorrectly believing that the wording was more important than real, transformative actions.

Countless high-profile cases of poor customer service and incorrect outcomes across industries have highlighted this fact over the years, and regulators’ collective patience has worn thin. The latest country to feel the wrath of the authorities is the UK, where the Financial Conduct Authority (FCA) is preparing to enforce its own paradigm shift in customer-first thinking, codifying the requirement (among others) to deliver positive customer outcomes and to ensure that customers' interests are central to the culture and purpose of the whole company.

Backed by the threat of severe penalties, this new "Consumer Duty” is deliberately vague in order to reduce the ability to use loopholes, and may spur a wider trend of customer-first regulations across the world.

The new Consumer Duty: demystified

The 120-page final guidance document that was released in July 2022 can be summarized by some very simple questions to regulated institutions.

•    Are you putting the customer at the heart of what you do, and delivering results that put them first?
•    Are you always putting reasonable expectations on the customer, from selling them the right product (and ensuring that any payments or rates are reasonable), to making sure that the customer can understand your communications, without needing to understand technical language and industry jargon?
•    How can you show that you do this, for every customer, across all of your customer journeys?

At an even simpler level, we could summarize everything into “Do you understand your customer and deliver solutions that benefit them?"

The current path to compliance

With such a shift in thinking, and an initial implementation deadline fast approaching, the general approach to compliance (after the natural blind panic phase) follows a basic pattern:

1.    Throw as many business experts at the problem as possible to understand the size of the gap and propose solutions.
2.    Throw as many IT experts as possible at the problem to close the gap in the short time remaining.

The result is a resource-heavy, highly intensive period of remedial work where manual effort and many late-night shifts replace calm and considered planning, followed by intelligence-led, technology-supported action. And while this approach does deliver results, it can often leave the post-implementation get-together looking less like a company-wide celebration in recognition of all the hard work, and more like a wake for the colleagues that were lost to competitors along the way…especially when the company mission statement implied that this was something that was already being done.

More importantly, this general approach is not sustainable beyond the initial FCA-mandated deadlines. The resources that were press ganged into helping keep the company compliant need to be released back to their day jobs, and the backlog of innovations will need to be looked at again. Unfortunately, the new Consumer Duty requires more than a one-off corrective action. It needs constant attention because every innovation and new product will need to meet the FCA rules, and customers' needs and expectations will continue to change. The duty to be customer-first isn’t a technical requirement—it’s a culture shift that will constantly evolve.

Beyond the panic

To continue to be compliant and to deliver on the promise of being a customer-first organization, companies require a combination of intelligence and process, underpinned by technology that enables and empowers employees to act to adapt to emerging customer needs. Many companies are finding that all three areas are lacking.

Intelligence comes in two parts – data and human. Most regulated companies have an abundance of customer data across multiple disparate systems, but lack the ability to bring it together to form an accurate picture of each customer. On its own, this is an issue, though one that has been worked around before. When coupled with the human factor – a lack of CX professionals to take the data and build future-state journeys that meet customers’ expectations – it becomes a major hurdle to success. This is compounded by a lack of customer-first processes. Regulated industries have embedded processes that are inherently inside-out. These operational ways of working will naturally seek to explain away any unreasonable demands placed on the customer through the complexity of siloed departments and legacy technical platform limitations.

The change leaders are ill-equipped to think differently, after so many years of being asked to chase targets that do not fully consider the customer’s needs. Technology is usually purchased to meet the needs of the employees, which naturally means that it is set up to support operational processes and efficiency demands. It also almost always struggles in the critical area of customer communication, where lack of personalization and speed of delivery limits the impact of any customer-facing improvements.

Committing to the customer

With the experience playing an increasing role in customer decisions, CX was important well before the baleful eye of the regulator was shone over it. But with that menacing gaze now firmly fixed, long-term, sustainable success is now irrevocably tied to delivering on the commitment to the customer. Fortunately, help is at hand.

While the regulated industries have been slow to change, communication and experience technology companies and consultancies that specialize in transformation have honed their skills and are available to lead rapid improvements. Those that embrace the step change in customer-first thinking and evolve their plans with integrated intelligence, customer-driven processes, and technology platforms that meet the customer's needs, will thrive. Those that choose to battle on without changing the foundational elements required to succeed, may lose market share AND face financial penalties.

Learn how you can achieve sustainable FCA compliance and deliver on the promise of customer-centricity with Inspire Journey—the industry's only customer journey mapping tool that integrates with Customer Communications Management (CCM) software to bring every touchpoint into a contextual, real-time view for continuous CX analysis and optimization.