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Consumer Duty: What, why and how to comply

What is the new Consumer Duty?

The Financial Conduct Authority’s (FCA’s) new Consumer Duty regulations are due to be published at the end of July 2022. FCA regulated businesses have been given notice that between then and April 2023, when the rules come into effect, the FCA will be looking for evidence of progress towards compliance.

The regulations aim to raise the bar on Consumer Outcomes beyond Treating Customer Fairly and will require businesses to deliver appropriate communications; suitable products and services; good quality after-sales care; transparent pricing and value for money. Businesses must demonstrate suitability from the point of sale and throughout the lifetime of the contract.

Why are updated Consumer Duty regulations needed?

An important driver of change for the FCA is the continuing divide between the knowledge of the seller and the buyer – the asymmetry of information – and the exploitation of this by some businesses. Not only is this not good for the consumer but it is also bad for the provider and could collapse a market if unchecked. However this opens up significant opportunities for businesses who can differentiate themselves with much more targeted propositions.

In the financial services market, consumers are not well informed on the whole and providers have limited knowledge of the circumstances and appropriateness of what they sell.  Despite fact find and risk assessment processes, consumers are often still mis-sold and end up mis-buying. Even the minority using financial advisers are affected. 

With Financial Ombudsman Service complaints up over 90% year on year in investments and pensions and 66% for banking and credit, the market certainly looks headed for something similar to a collapse.

What do businesses need to do?

The first of the four key consumer outcomes the FCA wants to address is ‘Communications to equip consumers to make effective, timely and properly informed decisions about financial products and services’.

Consultancy Hymans Robertson highlighted that the biggest challenges for businesses in implementing and demonstrating compliance are:

  • Accessing data on historic product sets
  • Identifying the characteristics of end customers without direct connection
  • Having the right skills, experience and resource to implement the changes needed

How can Open Finance help?

During the FCA consultation on Consumer Duty, Moneyhub identified Open Finance as the solution to help prevent a market collapse, bridge the disclosure gap, and to significantly reduce the cost of compliance. 

In addition, it opens new opportunities for businesses to use consent-based consumer data to identify and develop new hyper-personalised products based on needs and behaviours. 

With ongoing engagement, it provides a means of identifying early warnings of issues and the ability to act to limit detriment using an evidence base. The list of behavioural insights provided would be significantly enhanced by the adoption and facilitation of Open Finance powered tools. 

Acuamen’s Open Finance Technology can:

  • Aggregate account information from the widest range of sources in the UK – 200 UK financial institutions and 700 products plus international account aggregation
  • Analyse and categorise income and expenditure and create a net worth position from both connected and manually input assets and liabilities
  • Evaluate historic transactions, build budgets and forecast cash flows
  • Identify vulnerability of potential consumer through behaviours, transactions and financial decisions
  • Detect changes in personal circumstances through connected accounts such as cash movements, changes in income and payment commitments or account closures etc
  • Provide content and notification nudges to consumers to improve outcomes and address changes, as well as alerting the client’s trusted advisers if intended outcomes are no longer relevant or achievable

A fair and ongoing value exchange

The value exchange between a consumer and an adviser or product provider is not a one-off event at the point of a product sale – it is the foundation of a relationship and requires ongoing suitability checks. Users can share their data with advisers, solicitors, accountants or family members (especially valuable with vulnerable customers). They can connect accounts and consume personalised content in multimedia forms, from texts to pension rap videos!

Holistic financial wellbeing can really only be achieved through Open Finance and the two-way exchange of information and insights aimed at improving consumer outcomes.  The dividend for the supply side of the market comes as lower acquisition costs; higher retention levels; reduced compliance issues; improved data gathering; visibility of advised and non-advised assets and liabilities and productivity gains from the automation of suitability checks and helpful nudges.

A bright future with Open Finance

By adopting Open Finance, businesses can ensure that they are exercising appropriate governance across the value chain. Moneyhub’s Open Data powered technology has Consumer Duty compliance baked in. And, the added benefit of unlocking opportunities for businesses to develop hyper-personalised products based on consumer needs and behaviours to fuel growth. It’s win-win!


Source : Money Hub

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