Unpacking Consumer Duty for fintech firms
How can financial services firms embed the new Consumer Duty across their business to ensure that customers receive good outcomes?
The Financial Conduct Authority's new Consumer Duty came into force at the end of July, showing the regulators’ strong commitment to enhancing and expanding protection for consumers of financial products and services.
The FCA’s core remit has always been making sure that financial services firms are delivering good outcomes to customers—and the new Duty is their highest and most comprehensive standard to date. It applies to all companies carrying out a regulated activity in the financial services sector.
Under the new guidelines, fintechs and financial services companies need to demonstrate that they are ensuring that consumers receive good outcomes. The Duty also empowers the FCA to step in and impose penalties on firms that fail to provide evidence of these outcomes.
The Consumer Duty is deliberately broad, consisting of a new Consumer Principle (Principle 12), supported by cross-cutting rules and four specific outcomes relating to product development, pricing, marketing communications, and customer support.
It is clear that the FCA does not want firms to treat the new Duty as a box-ticking exercise. It is no longer enough for firms to simply avoid causing harm to their customers. Instead, they must be able to demonstrate that they are actively striving to deliver good outcomes at every stage of the customer lifecycle. For most firms, this means not just a significant overhaul of internal frameworks, policies, and procedures, but a huge mindset and culture shift on how they approach product development and distribution.
What is in the Consumer Duty?
There are three parts to the Consumer Duty.
- Consumer Principle (Principle 12): A firm must act to deliver good outcomes for retail customers.
- The cross-cutting rules. To help firms successfully achieve Principle 12, the FCA has set three rules that should guide all interactions with retail customers:
- Act in good faith towards retail customers
- Avoid foreseeable harm to retail customers
- Enable and support retail customers to pursue their financial objectives
- The four outcomes.
- The products and services outcome. Financial products and services should be created only after carefully considering the characteristics of the target market. Firms need to be able to evidence that a product has been created for a specific target market and that feedback from the intended customers influenced every stage of product development and distribution.
- The price and value outcome. There needs to be a fair correlation between price, the value provided to the customer, and a firm’s profitability. Firms need to show that the cost to the customer is fair when compared to value received.
- The consumer understanding outcome: Firms have an obligation to communicate with customers in a way that is fair, clear and not misleading. Whatever the method of communication, firms must give customers all the information they need to make good decisions about which products and services are right for them.
- The customer support outcome: In supporting customers, the channels chosen should meet their needs. It should also be clear whether or not a product is meant for any particular customer.
In practice, the Consumer Principle and the cross-cutting rules set out what your firm must do, while the outcomes are about what consumers should experience when dealing with your firm.
Implementing Consumer Duty
For established fintechs, here are some areas you can focus on to make sure the new Duty is firmly embedded across your business.
Talk to your customers. Consumer Duty is all about keeping the focus on the customers’ needs—and you can’t do that if you don’t know who your customers are or why they are using your products. This is a great opportunity to re-engage with your customers and develop a better understanding of their needs, pain points, and expectations. Gathering this data can be time-consuming, but it provides the essential foundation of your understanding of what a “good outcome” looks like for your customer base.
Review your policy framework, systems and controls. Most of your core regulatory obligations—such as complying with GDPR and having procedures in place to support vulnerable customers—will remain the same under the Consumer Duty. What is changing is not the specific rules you need to follow, but your approach to following them—shifting from a reactive harm prevention mindset, to a proactive approach that puts the consumer at the heart of everything your firm does. Your company wide policy framework, processes, systems and controls will need to be updated to reflect this shift in focus, which will in turn reinforce a wider organisational reorientation towards a consumer-centric approach
Train your customer-facing staff. Everyone in your organisation will need training on the Consumer Duty, but your customer-facing staff in particular need to be aware of how the rules apply to their role, and how the procedures and processes they follow day-to-day may have changed. Roleplaying the customer journey (i.e putting yourself in the customers’ shoe) and reviewing case studies can be particularly useful to understand not just the letter, but the spirit of the Duty and empower your team to view every single touchpoint and interaction as an opportunity to deliver good outcomes to your customers.
Adapt your product development pipeline. Your Consumer Duty obligations need to be baked into every product you sell. Your responsibility neither starts nor ends at product launch. Every phase of the product lifecycle—from discovery, to design, to distribution—must be focused on delivering on the four outcomes above. This may mean your overall time-to-market increases, and fintech firms aiming to stay competitive must adapt quickly. If you treat Consumer Duty compliance as an afterthought, it will ultimately become a permanent roadblock in the product development process. If you start incorporating the Duty now, the adjustment period may be slow, but in the long-run your teams will be better supported to build great products that deliver exactly what they say they will to your intended target market.
Monitor and access compliance. To stay on top of your Consumer Duty obligations, ongoing assessments and monitoring is crucial. This can be done by designing a dashboard and reports for the appropriate governance committees and the board of directors. Your reports should provide up-to-date information on how the Consumer Duty is being implemented, pinpoint areas for improvement and outline plans to drive full compliance where applicable.
How can Griffin help fintechs meet their Consumer Duty obligations
While Griffin is not a retail bank, we still serve retail customers through our own customers and we have implemented the Consumer Duty across our business. Our products have also been designed to help our customers meet their own Consumer Duty obligations. One of such products is our Safeguarding accounts. Fintechs are mandated to hold customer funds in bank accounts, distinct from their own operational accounts. This separation is crucial to protect customers in the event that fintech goes out of business. At Griffin, we offer both dedicated and pooled safeguarding accounts, with swift onboarding, easy API integration, and simplified reconciliation processes.
The Duty also emphasises the importance of fairness in the value received from any financial product. Amid the ongoing cost of living crisis, consumers are seeking better interest rates on their savings and balances held in fintech apps. Fintechs can offer value by white-labelling Griffin’s savings accounts, allowing their customers to earn interest.
Lastly, adequate financial crime controls are designed to mitigate risk, prevent and detect fraud, money laundering, and other illicit financial activities that could harm consumers and the integrity of the financial system. Our automated customer onboarding solution, Verify, allows your fintech to seamlessly carry out KYC and KYB checks including ID&V, anti-money laundering, anti-fraud checks and screening via a single API. These controls which are ongoing and continuous ultimately serve to protect your customer from financial harm.