The regulator published its 121-page document, Guidance for firms on the consumer duty, alongside its new consumer duty today (July 27) which is to be implemented from July 31, 2023.
The document provides non-handbook guidance designed to help advisers understand the FCA's expectations of the standard of care firms should give to customers in retail financial markets.
The regulator said: “It sets expectations that can apply flexibly and dynamically to new products, services and business models as they continue to emerge and develop in a changing and increasingly digital environment.
“So, it better protects consumers from current and new/emerging drivers of harm, and gives firms more certainty of our expectations to support innovation, competition and new ways of serving customers.”
In its guidance the regulator provided a number of examples of good consumer support, communication channels, vulnerable customers and unreasonable barriers.
Information on a timely basis
Product and service features can change over time such as when introductory rates come to an end or variations are made to contracts.
Customers’ circumstances can also change over time and both factors can result in products and services that no longer meet their needs and objectives
When assessing this, the FCA considers it to be good practice for firms to be mindful of this and communicate at appropriate points. This is particularly important for longer-term contracts where there is greater scope for circumstances to change
The FCA’s example in the guidance refers to its first tranche of rules and guidance following the retirement outcomes review.
This introduced additional trigger points for firms to send pension ‘wake-up’ packs.
“At age 50, customers are sent a summary document that includes key information such as pot size and generic risk warnings. This is followed by a full ‘wake-up’ pack at age 55 and every subsequent five years, which sets out the different options available when accessing pension savings.
“These changes are intended to give customers timely, relevant and adequate information about their retirement options to enable them to make an informed decision. This type of approach is consistent with the aims of this outcome.”
The FCA said by providing relevant information at appropriate points during the product lifecycle, it gives customers the opportunity to assess their options in good time.
Exit fees and charges
The support firms provide should not lead to the product costing more than customers expected up-front, the FCA said.
Firms should avoid causing harm to customers by making sure their consumer support does not impose unreasonable additional costs, including unreasonable exit fees or other charges, delays, distress or inconvenience.
The City watchdog acknowledged that product terms and conditions can include contractual provisions relating to early termination – but firms should not impose unreasonable exit fees.
"In general, an exit fee is more likely to be reasonable if it is commensurate with the costs incurred by the firm due to the customer terminating the agreement early," the FCA said.
Any material provisions relating to early termination, including exit fees, should also be clearly drawn to customers’ attention, as appropriate, in line with the consumer duty expectations.
In its example of poor practice, the FCA said: "A retail banking customer telephones their bank in good time to transfer money from a savings account into a current account, to avoid going overdrawn. The customer waits on hold for a long time, without good reason, and is unable to get through to an agent to make the transfer, despite trying to do so throughout that day.
"They were also unable to transfer the money online due to an issue with the firm’s online banking service. This results in the customer going overdrawn and incurring charges."
However, in an example of good practice, the regulator said: "An unforeseeable event causes a surge in demand for a firm’s consumer support. The firm has reasonable processes in place to manage unexpected surges in demand and diverts resource to deal with this, prioritising the most urgent and significant requests.
"This means that some customers will experience a delay. The firm posts a prominent notice on its website and social media to inform customers of the situation, as well as a message when customers first contact its helpline. It sets out a process for customers to escalate urgent issues.
"In this example, the firm has acted reasonably to avoid causing harm to customers and acted in a way that is consistent with the consumer support standards."
Communication channels
The FCA said communications should be effective regardless of the channel of communication used – whether face-to-face in branch, on the telephone or online.
Digital communications should be compatible with different mediums, for example computers, tablets or smartphones.
The regulator said firms should also ensure they meet the FCA’s expectations regarding the provision of different channels of communication, as set out under the consumer support outcome.
The FCA’s example in the guidance said: “A bank identifies where its customers do not have sufficient funds in their accounts to make regular direct debit payments.
“The bank sends its customers a short, effective communication through its mobile app or via text message – clearly identifying that it is from the bank – to make customers aware, allowing them time to deposit the funds needed to make payments and avoid additional charges.
“This firm acted in good faith in this scenario and used its communication channels effectively to tailor messages that helped customers avoid foreseeable harm.”
Another good practice example of tailoring communication was that firms should design communications with customers in mind rather than focusing solely on what is most commercially efficient.
“We have seen cases where firms have sent a single and extremely long communication to all customers, covering a range of issues, with customers left to work out which bits of the communication are relevant to them.”
The FCA said: “One customer was unable to read large print and did not know braille. They informed their bank of this and asked to receive communications by email, to allow them to use software to turn the emails into speech. However, the bank continued to send the customer communications on paper, and not by email.
“The firm did not act reasonably to avoid causing consumer harm or enable them to pursue their financial objectives.”
Vulnerable customers
Last February, the FCA published guidance for vulnerable customers and warned that its focus on the way firms treat vulnerable clients will not be a "one-off exercise".
It predicted that vulnerable customer guidance would apply to approximately 52,000 firms, costing the industry £710mn, with ongoing costs of £450m.
In its example of good practice, the FCA said: “A customer with mental health issues had recently moved their bank account but lost control of their finances and incurred bank charges. They were able to communicate easily and effectively with their bank through online web chat.
“The bank’s web chat adviser talked things through with the customer, making them feel genuinely understood and supported, and made sure they received appropriate forbearance.
“This firm’s consumer support is designed to meet the needs of customers, including those with characteristics of vulnerability. It has acted reasonably to avoid causing harm to the consumer and enable them to pursue their financial objectives.”
Another example was of a bank that offers access to British Sign Language interpreters in-branch, via an app on branch tablets, and on its website, enabling customers to deal with their affairs from the comfort of their own home.
“This service increases accessibility and effectively meets the communication needs of certain customer groups. This firm’s consumer support is designed to meet the needs of customers, including those with characteristics of vulnerability.”
“It has acted reasonably to avoid causing harm to customers and enable them to pursue their financial objectives.”
Limited support
The FCA said while it recognised a firm could design a product with a digital-only support offering, there are various factors for firms to consider to ensure it delivers good customer outcomes.
In particular, it said firms should consider: communicating the support available in line with consumer understanding, ensuring support works effectively, dealing with non-standard issues using exceptions processes, operational resilience and customers with protected characteristics and changing needs.
In its example, it said: “A firm uses an automated telephone system as part of its consumer support. This automated system only provides options to progress with queries regarding a few commonly raised issues. It does not provide a route for customers to seek support regarding other issues.
“As a result, some customers are unable to obtain the support they need or information on how to pursue this further. This firm’s consumer support does not work effectively.”
Another example was that a payments firm operates limited channels of support, which it clearly communicates to customers prior to purchase.
“When accounts are frozen, the only way customers can communicate with the firm is through a chat function online.
“However, questions often go unanswered, or it is unclear whether an issue is being dealt with. Sometimes multiple customer service advisers sequentially enter the same chat and ask the customer the same questions as the previous adviser. This results in customers becoming confused and disengaged.”
The firm also does not have a process to provide adequate support to customers in the event of a digital outage and this firm’s consumer support does not work effectively.
An example of good practice would be if a firm plans to introduce a new digital process for customers to report fraud and security concerns.
Unreasonable barriers
Another issue is there can be commercial incentives for firms to create friction points, often called ‘sludge’, that deter their customers from taking action in their interests, such as making a complaint or switching product or provider.
Even where firms do not set out to create sludge, they can fail to give adequate attention and provide appropriate support where customers seek to take action that does not benefit the firm and tis is not consistent with the duty.
An example by the FCA: “A firm is increasing the interest rate on one of its savings products which will benefit customers who hold that product. However, the firm requires customers to log on to its website, access their account and find a page with a discreet radio button that needs to be selected for the increased rate to be added.
“The firm has designed this process as it knows through its behavioural analysis of its customers that many will not take these steps and therefore it will not need to pay additional interest to these customers.
“A firm acting in line with the duty would use its behavioural analysis as evidence of the need for a simpler approach to support good outcomes, enabling its customers to easily obtain the increased interest rate.”
Other disclosure requirements
There are a range of legislative and regulatory disclosure requirements that apply to providers of retail financial products and services such as financial advisers.
These were introduced to ensure that consumers are provided with certain information to help them make effective decisions at key points in the customer journey.
However, the FCA said although firms should therefore continue to comply with these requirements, they will need to think more widely about the purpose of their communications, and the outcomes they are focused on, to meet the expectations under the duty.
Where firms must communicate complex information to comply with other disclosure requirements, they should consider what additional steps they can take to support consumer understanding.
In its example, the FCA said: “A firm provides a product sales pack to a customer, including cover letter, summary sheet, and full terms and conditions. The cover letter explains the cost of the product during an introductory offer period; the summary sheet explains the cost of the product at the end of the offer period; and the full terms and conditions explain the costs of cancelling the product.
“This information is not clearly signposted. The customer therefore needs to read and digest all three documents to find and understand the total costs associated with the product. This makes it difficult for the customer to identify and understand key information needed to make an effective decision.
“Firms should help consumers navigate the information they provide. For example, by putting all information on a particular issue in one place or signpost or layer it in a way so it is all interlinked.”
sonia.rach@ft.com
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