Regulatory Round up – July
In the week before the Consumer Duty is implemented for UK financial services firms, the Financial Conduct Authority issued a warning to firms to focus on ensuring customer service is helpful and responsive.
Referencing its Financial Lives survey, the Regulator found that approximately 7.4 million people unsuccessfully attempted to contact one or more of their financial services providers in the 12 months before May 2022. This figure is extrapolated from the responses of 19,000 respondents.
The FCA found that the most vulnerable were most likely to struggle with successful contact; the survey highlighted that adults with “one or more characteristics of vulnerability were more likely to report that customer support services did not help them at all to achieve what they wanted to do.”
The majority of issues with poor customer service were caused by IT system failures, sales pressure, the firm making errors or not following instructions, delays when making changes to an account, and having unsuitable channels to contact the provider.
Providing – and evidencing – good customer service will be critical to complying with the Consumer Duty. The survey also found that 51% of adults did not receive any communication within the year to help them make informed and timely decisions about their financial products; where customers had used provider communications to help them make a decision, 73% of non-vulnerable customers found that it had helped. 32% of vulnerable customers said the communications had not been helpful. With the proportion of vulnerable customers set to rise – recent research by Mind found that rising mortgage rates is impacting almost a third of UK adults’ mental health, with 10% of respondents saying it affected their mental health a lot – FCA research highlights a potential gap in current practice.
The finding that less than half of consumers have confidence in the industry and do not believe that financial services firms are honest and transparent is a shocking figure. The good news is that that figure decreased when respondents were asked about their own firms, meaning that perceptions of practices are lagging behind best practice developments that customers are benefiting from.
Financial Services and Markets Bill
The Financial Services and Markets Act 2023 was granted Royal Assent on 29 June – under a year from its initial reading. The Government’s hope is that the new Act will support growth in the economy and an “open, sustainable and technologically advanced financial services sector.”
New powers will pave the way for reforms to Solvency II. Also on the cards are new secondary objectives for the FCA and PRA, as well as greater scrutiny and accountability for the regulators. The FCA says it welcomes the new objective – to facilitate international competitiveness and promote sustainable growth – and looks forward to “contributing to this challenge.”
The full and final published version is not yet available, but it is likely to have a significant impact on the regulatory framework.
The repeal of EU financial services law could be carried out in three separate segments, with at least the first two – focusing on wholesale markets, listing and securitisation reviews and factors relating to economic growth – considered in part by the end of 2023.
We’ll keep you posted as the final version of the bill is published.
Buy Now Pay Later regulation
Plans to regulate the BNPL sector have been delayed, with reports that the Treasury is considering shelving regulation. The FCA’s consultation period has lasted almost two years and draft legislation was published in February. The Government is said to be concerned about economic impacts and the potential for low-interest credit products becoming less available to those who need it during a cost-of-living crisis. The Government is reportedly considering a number of alternative options, including updates to the Consumer Credit Act.
Cost of Living and struggling borrowers
The FCA reports that it has stopped 627 firms that failed to meet the minimum standards from operating over the previous 12 months. That total has risen 30% compared to the previous year.
The regulator states the increase is proof of its determination to enforce high standards; with an increased focus on preventing harms this total is likely to rise between 2023 and 2024 as the Consumer Duty increases standards further still.
As the cost-of-living crisis continues, the FCA is particularly focused on fair treatment of those in financial difficulties or those who are struggling to meet their repayments. Tailored support helps those who are struggling to manage their finances and – given the requirements of the Consumer Duty – is a crucial step in ensuring good customer outcomes.
FCA and ICO clarify data protection concerns
A joint letter from the ICO and FCA confirms that data protection legislation does not prevent firms from telling customers about better deals, even if they have opted out of marketing communications. Regulatory communications that set out neutral and factual information about the interest rate and the terms of the customer’s savings products, and the interest rate and terms of other available products plus the options for moving to another product, are not prohibited by UK GDPR, DPA 2018 or PECR.
The FCA has taken the opportunity to highlight that the Consumer Duty includes rules and guidance about communication with customers, and that PRIN now requires firms to use communications to give customers the information they need to make properly informed decisions and to communicate with customers at “suitable points throughout the lifecycle of a product.”
Changes to Firm Reference Numbers
The FCA have confirmed that they will switch to seven-digit FRNs from July 2023 for newly registered firms. Firms allocated six-digit reference numbers will continue to maintain those numbers.
Good customer service that leads to good outcomes for consumers is now the benchmark. Our online training courses introduce new staff to regulatory requirements, key legislation and process, and offer excellent refresher training for established staff, with up-to-date scenarios and soft skills training. Our Financial Difficulties course and Vulnerable Customer course are priced at £20, are accessible at the user’s convenience and provides a certificate upon successful completion.
With the Consumer Duty now in full swing, our full range of resources on the Consumer Duty are available here.