Perception is reality - metrics for measuring the success of the FCA's Consumer Duty

The FCA has published it Business Plan 2022/23 and Strategy Paper for 2022-25. When it comes to the treatment of consumers, the Stratgey Paper sets out four overarching outcomes that it expects from all financial services firms to deliver; 

1. Consumers receive fair prices and quality. 
2. Consumers are sold suitable products and services and receive good treatment.
3. Consumers have strong confidence and levels of participation in markets.
4. Diverse consumer needs are met through high operational resilience and low exclusion.

The FCA repeats its view that, whilst consumers should take responsibility for their decisions, their ability to do so may be limited. This maybe a result of their own vulnerabilities, or because of a lack of current and clear information from firms. It aims to enable customers to protect themselves by informing and empowering them. The proposed Consumer Duty is central to this strategy. Given this, the Strategy Paper and Business Plan give some clues about the FCA's expectations of firms once the Duty comes into effect and the way in which it proposes to measure success.

Customer understanding

This is one of the FCA's four outcomes under the proposed Duty. The FCA states that it will focus on both compliance with relevant disclosure rules and whether customers understand the products they buy - and it will expect to see evidence of both. The importance of testing, recording both the results of that testing and the steps firms have taken to address concerns is clear.  There is no suggestion, however, of how firms faced with statutory disclosures should respond where there is evidence that consumers do not understand the mandated form of words - layering consumer duty compliant communications over statutory disclosures is one potential solution (however inelegant).  Not only, say the FCA, do firms need to 'get better' at explaining investment risks to consumers, but it is also making structural changes to prevent some individuals from investing altogether (for example by consulting on changes to limit which consumers can respond to crypto asset promotions). The paper states that it does not believe that warning customers 'goes far enough' to protect them. There is a hint of creeping paternalism here....

Metrics indicating success

How will the FCA know if the Duty and other steps the FCA is taking to protect consumers are working?  One obvious measure is that where consumers are getting products and services which meet their needs and provide fair value, this should lead to a reduction in complaints upheld by the FOS. The regulators recognises that any reduction in complaints will lag behind changes to improve outcomes for consumers – there may even be a brief initial increase as customer awareness of poor practice grows.  

The FCA also indicates that it will "measure what consumers are seeing and feeling" and will be looking for an increase in the proportion of consumers, including vulnerable consumers, who agree that most financial firms are honest and transparent in the way they treat them (largely through its Financial Lives survey). 

This is not the only time in the Strategy Paper and Business Plan where the FCA indicates that it will be considering customer perceptions when assessing whether it is achieving its objectives. Whilst in this context responses will give a sense of the extent to which public trust in the sector has been restored, this must be combined with clear data about firms' actual conduct if the full picture is to emerge. Public opinion is notorious fickle and easily swayed by a one-off story or event which might not bear any resemblance to how most firms treat their customers. 

Perception is not necessarily reality......

Further insight into the FCA's proposed Consumer Duty can be found on our dedicated resource page.