In this post we’re continuing to 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.
You can find questions 1-5 in Mythbusting: Consumer Duty (Part 1)
6. My firm already sends out annual statements and warm up communications for pensions customers, so will comply with the Customer Understanding outcome
The Consumer Duty requires that firms monitor customers' responses to communications, but that’s not all. Firms must also take action to review those communications and customer journeys if they are failing in helping customers make good decisions to achieve their financial goals.
Where does Open Finance come in? Pensions Dashboards and Open Finance technologies are good examples of new data sources that can be used to help customers engage with their finances in a way that drives them to take action, especially when a communication requires a decision.
7. Our products are held for the long-term and outcomes may not be known for some time, so we won't need to take action in the short term
The Consumer Duty requires ongoing monitoring by firms to prevent foreseeable harm - including the impact on consumers of changes in the external environment (such as the cost of living) or changes to customers' circumstances, either as a collective or on an individual basis.
Where does Open Finance come in? Data is critical to understanding customers' vulnerability, suitability, eligibility and affordability in real time. Firms will be expected to intervene to prevent or mitigate harm before it arises where they could reasonably have foreseen it.
8. The Consumer Duty won't apply to small firms
The Consumer Duty applies to firms where they have material influence over consumer outcomes, irrespective of the size of the firm. The Duty does acknowledge that the size of a firm and its capability will shape its response.
All firms irrespective of size are required to put equal weight on customer service and customer support as they do sales and profitability when identifying and mitigating harm.
Where does Open Finance come in? Adding tools such as a PFM and nudges to your value proposition can help your customers engage with their finances and provide a real time channel for personalised communications, exactly when they’re required. The FCA wants to see competitive markets where firms compete vigorously for customers so making it easy for consumers to switch, cancel or complain about a product, and to promote products that meet consumers needs can help firms evidence that they are complying.
9. The Consumer Duty means my firm will have to consider a customers entire financial objectives and give them advice, even if we do not give regulated advice today
The Consumer Duty does not create an advisory relationship where one does not exist today or impose regulated activities outside of a firms' current scope.
Customers' financial objectives are defined in relation to the specific product or service being offered. For example, the objective of a holder of a simple cash savings account would be considered to be to have a safe place for their money and protect its value.
Where does Open Finance come in? Whilst Open Banking and Open Finance data sources are not a panacea, firms with high customer risk, product risk or firm risk should consider how consumer transaction data can help them comply with the Consumer Duty.
For example, firms serving vulnerable customers with low resilience or capability, firms offering complex products with high risk of downside harm, and firms with a high degree of influence over consumer decision making can all benefit from the insights gained through customer consented transaction data.
10. My firm is Consumer Duty compliant because it already does affordability checks when lending money to customers at point of sale online.
The Consumer Duty applies throughout the customer lifecycle and irrespective of the channel used at point of sale. It’s no longer enough to prove the product is appropriate at the time of uptake, firms must monitor ongoing affordability for as long as the product is used.
Where does Open Finance come in? Firms should consider what data they need to monitor affordability throughout the life of a loan, especially for high risk or vulnerable customers where the risk of harm is greatest. Firms should consider implementing new channels, journeys or communications to engage consumers and intervene to offer support before harm arises.
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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