The rules come into effect today and encourage a greater focus on reducing consumer harm and providing good outcomes. It applies to all firms regulated by the Financial Conduct Authority (FCA) and companies have been working to meet the rules since they were announced last year.
The hard work has just begun
Jonathan Barrett, CEO and co-founder at Comentis, said when it came to vulnerability, this was just the beginning.
Barrett said there were many businesses which would have seen the last few weeks as the “last push to get ready”, but said “in reality, the end of July isn’t a finish line”.
“Instead, it should be seen as the firing of a starting pistol, marking the beginning of a broader conversation, and understanding on vulnerability,” he added.
He said some firms might be looking forward to putting the regulatory task behind them this summer but said the topic of vulnerability was “here to stay”.
Barrett added: “Over time, as we develop our understanding, the outcomes we deliver for vulnerable customers will start to gradually improve. But we shouldn’t expect an overnight transformation. We’ll be in escalation for years.
“As such, and given Consumer Duty is really about continuous improvement, then once 31 July has passed the goal should be for firms to look at the measures they’ve put in place so far and ask how they can go a step further.”
Kay Westgarth, sales director at Standard Life Home Finance, the scale of work put into the new rules were “almost unprecedented”, as was the collaboration between those in the sector.
She added: “While the sector is well-prepared for the deadline, now is not the time to rest on our laurels but to live and breathe the new legislation. This is not a ‘one and done’ initiative and a lot of hard work will be needed in the months and years to come to ensure compliance – and to make our industry better for all customers.”
Paul Glynn, CEO of Air Group, said the next few months would be “arguably even more important” as it would determine whether the effort put into Consumer Duty had been successful.
“This is not a box ticking exercise but an opportunity to prove that we are true professionals who are invested in ensuring clients make the best possible choices for their individual circumstances,” he added.
Andrew Gething, managing director of MorganAsh, said it was “fantastic” to see Consumer Duty come into force after so much preparation and talk.
He added: “There’s no question it will be a transformative piece of regulation, helping level up all areas of the industry to eliminate foreseeable harm and ensure good outcomes for customers – especially for those with vulnerable characteristics.
“Complacency has long been a challenge for Consumer Duty, with firms believing they already meet its requirements. In reality, the new rules expand the scope of vulnerabilities firms must now consider and the actions they must take. It also expands the monitoring requirement considerably to cover the lifetime of the product.”
Suzanne Homewood, managing director of Moneyhub Decisioning, said: “Whilst today’s official deadline is the green light for change, it’s actually the power of the ‘permission’ that the FCA is granting for organisations to use regulatory change to transform customer relationships, which should serve as a positive catalyst for opportunity and innovation, continuously improving outcomes for both organisations and customers alike.”
Socrates Mhlanga, chief risk officer at The Exeter, said: “Meeting regulatory requirements is not a one-time event. We must be prepared to continuously review customer outcomes and ensure we offer the best solutions to meet the needs of UK workers and their families in both the short and long term”.
What might change
Frode Berg, managing director for EMEA at AI credit risk decisioning firm Provenir, said the requirement for lenders to change their standards of support to limit consumer harm and promote good outcomes could result in them being more cautious and applying a stricter lending criteria.
He said: “As a result, some individuals who may have previously qualified for credit may now face more difficulty in obtaining it.
“Conversely, it is also an opportunity for lenders to adopt advanced data and analytics technologies, which will enable them to better assess the creditworthiness and affordability of borrowers throughout their credit journey and build more personalised offerings and safeguards for consumers and businesses alike.”
Berg said the rules would impact lenders’ credit risk assessment processes and they would need to adopt a more holistic approach to adapt.
He added: “This will require them to gather more data and insights into borrowers’ financial situations, including their affordability and potential signs of distress. Lenders will also need flexibility to quickly adapt their policies and the ability to test and deploy models quickly. Legacy systems will create challenges to bringing in new data sources and being able to make changes to processes and models in an agile manner.”
Berg said the impact on borrowers would likely be positive in the long term as it would create access to better, tailored products which would protect them against downfalls and be more appropriate for their circumstances.
He said: “The new rules will require lenders to prioritise customer outcomes and put the interests of their customers first. This will mandate a shift in the lending industry towards a more customer-centric approach. Lenders will need to invest in technology and processes that allow them to comply with the regulations at a product level and meet the new standards of support.
“The availability of credit may be influenced by lenders’ ability to adapt and comply with the Consumer Duty requirements, potentially leading to changes in the types of products and services offered in the lending sector.”
Gething agreed that technology would be essential to Consumer Duty with regards to assessing vulnerability, as it would “mitigate the considerable training overhead of learning all the necessary characteristics of vulnerability and the myriad of treatments available to clients”.
“While there may be firms still with work to do and attitudes still to change, those that have embraced Consumer Duty are already understanding the competitive advantage it can provide,” Gething added.
Glynn also pointed to a focus on training, saying that an adviser taking on more qualifications would highlight their “determination to keep on top of developing trends and help their clients to achieve the good outcomes expected under the new framework”.
Barrett said when it came to identifying vulnerabilities, firms should look at the data they hold to see what is missing and what can be refined.
He also suggested enlisting a third party firm to help improve data collection.
Barrett added: “So many firms are new to this process of collecting vulnerability data. If there are thousands trying to solve the same problem, and to make the same improvements, it makes all the sense in the world to look at other firms – even other industries – and try to benefit from their learnings.”
