In this post we’ll bust some myths and misconceptions we’ve heard around the implementation of the new Consumer Duty, and look at how Open Finance solutions can help firms achieve better customer outcomes.
1. Consumer Duty is just a new name for TCF (Treating Customers Fairly)
Not quite. The new regulations aim to raise the bar beyond TCF. The Consumer Duty signifies a step change for firms. In particular, the FCA is moving away from principles based regulation to outcome based regulation.
This means firms will be expected to make greater use of data to identify and respond to harm (foreseeable or actual) when designing and marketing products and services, and also in real time with their customers.
Where does Open Finance come in? The FCA has placed data at the heart of its strategy. It can now see customer outcomes, actual costs and charges applied to / paid by customers on products they hold, and how customers are actually using products (or not) by cohort or segment, in real time and it expects firms to do the same to prevent the occurrence of harm.
Firms will need a granular understanding of customers needs and characteristics, will need to design products and services for those customers and mitigate foreseeable harm and monitor outcomes in real time.
2. My firm complies with PROD rules so won't need to worry about Consumer Duty
This is true insofar as Consumer Duty relates to the Product & Services and Fair Value outcomes.
However, firms will also need to be on top of the 'downstream' outcomes where harm might occur. This includes designing or improving customer support facilities so they don’t hinder customers enjoying the benefits of your products, and communications that give customers the right information at the right time in the right format to help them make effective decisions and achieve their financial objectives.
Where does Open Finance come in? Open Finance provides the data and the tools to prompt action and provide the real time insights required to create, monitor and adjust target outcomes. If someone loses their regular income, takes on a mortgage, or even starts gambling, this can all be monitored through Open Finance.
Open Finance powered Personal Financial Management (PFM) platforms enable a truly holistic view of a customer’s financial situation, while custom nudges can be used to encourage better outcomes and even reduce the need for, or limit the impact on, customer service functions. Open Finance augments traditional ways of identifying and monitoring affordability, vulnerability, suitability and eligibility (such as credit scoring) to ensure consumers receive the right communications and support at the right time.
3. My firm does not manufacture products it just distributes them, so the Consumer Duty does not apply to us
While firms are only responsible for their own activities and not obligated to oversee others in their distribution chain, the duty absolutely does apply to distributors.
Consumer Duty can also apply to firms who can determine or influence the outcomes for customers, e.g. businesses who impact the design, operation, or distribution of retail products or services.
Where does Open Finance come in? Distributors need to work with manufacturers (and vice versa) to ensure sales and marketing target only those customers for whom products are designed.
Solutions such as a multi-tenant PFM would allow firms to embed Open Finance in distributors’ propositions to help effectively target and monitor customers.
4. My firm already has processes and communications in place for vulnerable customers so won't need to take any more action
The Consumer Duty requires firms to test that their communications have the desired impact with customers in achieving the 4 customer outcomes. Simply sending letters to customers to warn them about harm is no longer enough.
Instead, firms will need to test and redesign journeys and communications to evidence that they are intervening to mitigate foreseeable harm and that customers with defined needs, characteristics and behaviours are acting on those interventions and making better choices.
Where does Open Finance come in? Using new channels such as a PFM platform and custom nudges allows firms to trigger timely, targeted and contextual communications, and then ensure those communications are read and actioned.
Utilising Open Banking and Open Finance transaction data, firms can identify vulnerability in real time - such as when a customer's circumstances change - and even model potential vulnerabilities down the road.
5. As an advisor we do fact finds with our clients so we already understand their wants, needs and vulnerabilities
When designing communications or sales strategies for groups of customers with defined needs, the Consumer Duty requires firms to consider and mitigate the risks of harm that might arise from behavioural biases that exist, either on the part of a customer or advisor, such as when providing or gathering information as part of a product sale.
Where does Open Finance come in? Automated fact finds using Open Finance ensure a true picture of a customer's circumstances can be obtained. `Suitability assessments and letters can be powered by data to help personalise them to the client’s precise circumstances, so that clients are more receptive to them and advice given is more appropriate.
Worried about complying with the new regulations? Check out our Consumer Duty resources or get in touch to explore our solutions.
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