Matthew Connell gives a regulatory update on the FCA’s proposed Consumer Duty
The UK Financial Conduct Authority (FCA) published its latest proposals for a ‘Consumer Duty’ in December. This is organised under three different levels:
- A principle that states that “a firm must act to deliver good outcomes for retail customers”
- Cross-cutting rules that state that firms must:
o act in good faith toward retail customers.
o avoid foreseeable harm to retail customers.
o support retail customers to pursue their financial objective.
- Finally, the FCA will expect evidence of firms achieving good outcomes around products and services, price and value, consumer understanding and consumer support.
The FCA has stressed that the Consumer Duty will “set higher standards in new rules, informed by our experience intervening in markets and firms, and what we know about consumers”.
One element that it will look for from firms is a continuous process of building a proposition, monitoring how the proposition works with consumers, analysing this experience, learning from it and then using the learning to build a better proposition.
This dynamic model of good practice, which the FCA has also placed at the heart of its guidance on consumer vulnerability, is something that it expects to enforce more frequently than it has in the past, saying: “In our work with the industry, our focus on the Consumer Duty should enable us to more quickly identify practices that negatively affect those outcomes and intervene before practices become entrenched as market norms.”
The FCA has also said, however, that it expects to engage in fewer interventions “after things have gone wrong”.
Many of the outcomes that the FCA will look at are very similar to the outcomes measured in the CII’s Public Trust Index, which looks at six outcomes at purchase or renewal: ease of doing business, price, loyalty, protection, confidence in the insurer paying out, and the relationship with the insurer; and three outcomes at the claims stage: respect for the claimant, speed of processing the claim, and the control that the customer has over their affairs during the claim.
At the CII, we will be looking at how the process we use for gauging customer trust in insurance can also be used to measure progress across the profession against the FCA’s four key consumer outcomes.
One example of outcomes that the FCA said it was looking to improve in its Consumer Duty paper was ‘price walking’ in the motor and home insurance markets, where the cost of insurance is increased at renewal, compared to the price offered to new customers with the same risk profile. The FCA introduced new rules that will take effect from 1 January, to ensure that “renewing home and motor insurance consumers are quoted prices that are no more than they would be quoted as a new customer through the same channel”.
Matthew Connell is policy and public affairs director of the CII