The FCA's New 'Consumer Duty'

The UK's Financial Conduct Authority is consulting on the introduction of a new "consumer duty" that will apply to regulated firms in relation to their regulated activities by 31 July 2022. This follows the report on a previous consultation in April 2019. The FCA is holding a webinar on the proposals on 10 June 2021; and comments will be open until 31 July 2021. The rules would be consulted on by 31 December 2021. Please let me know if I can help.

Broadly, this would require firms to act in ways that enable retail customers to obtain the outcomes they should be able to expect from the firm's products and services, rather than to hinder customers obtaining those outcomes. This effectively puts firms (and, significantly, the FCA) in the customers' shoes. 

This may require some firms to radically alter their culture and behaviour to focus on consumer outcomes, and putting customers in a position to act and make decisions in their own interests. 

There will be three elements to the new duty:

• A new consumer principle: "a firm must act in the best interests of retail clients" or "a firm must act to deliver good outcomes for retail clients". 
• Broad rules that would require firms to take all reasonable steps to avoid foreseeable harm to customers and enable customers to pursue their financial objectives; to act in good faith. 
• More detailed rules and guidance on firms' conduct relating to four specific outcomes: communications; products and services; customer service; and price and value. 

The FCA is also consulting on the potential benefits of attaching a private right of action to the new duty, and what any unintended consequences of this might be. 

Critics of the FCA's approach to consumer outcomes in the wake of various 'scandals' over the years will be hopeful that this new duty will see the FCA aligned with consumers, rather than tending to protect its own reputation, the 'financial services industry' and the firms its regulates.

Payment Services #.0: When Payments Finally Become Less Visible

Today marks the dawn of new payments regulation under the second Payment Services Directive (PSD2). Yawn, you say. But, unusually for a technology-based industry, the experience for customers should outstrip the hype. Is this Payment Services 2.0? 3.0? 4.0?  Who cares? After all, "paying" for something or "checking your balance" should not be an activity all on its own. It should be just a small part of something else you're in the middle of doing. In other words, it's what you won't see that should make all the difference...

You might not deal with your bank anymore when paying or checking statements

New “payment initiation services” will mean you can use a separate service provider to make payments from your bank account or other payment accounts, without logging-in to your payment account provider's systems.

New “account information services” will combine the information from all your payment accounts and display it to you in one place. You could also permit that information to be sent to others (e.g. a lender, a comparison website or professional adviser). 

Not only will such services cut the amount of time you spend logging-in to different providers. They'll also make it easier for you to gather your financial information, understand and control your financial affairs and make payments from a range of accounts. 

You won't see retailers charging you for the privilege of paying them

From now on, nobody can add a charge based purely on how you pay them. So all their profit will be in the price of the goods or services you buy, not the extras. 

The UK has typically gone further than other EU countries to apply this to every type of consumer payment method. So, any contract term requiring such a 'surcharge' will not be enforceable. In fact, there will be an implied requirement to refund the excess. Or you could initiate a chargeback via your debit/credit card issuer, or make a claim against your credit card issuer under section 75 of the Consumer Credit Act. 

In addition, any extra charge for using a commercial payment method must be limited to the supplier's cost of accepting that type of payment. Again, no room for extra margin here.

You won't realise that big loyalty schemes are now policed by the FCA

Retail loyalty schemes, such as gift cards, fuel cards and other ‘limited network’ programmes, will need to be registered with the Financial Conduct Authority if the value of their transactions meets or exceeds €1 million (or the GBP equivalent) in any 12 month period.

The intention is to safeguard customer funds that are paid into wider schemes, as with any other e-money or payment service.

The FCA must then decide if the scheme really is a ‘limited network’ that's entitled to an exclusion from e-money and payments regulation. 

If not, then the retailer may have already committed an offence by offering the scheme in the first place.

The retailer also commits an offence if it fails to notify the FCA within 28 days after reaching the €1 million threshold. So retailers should check the status of their loyalty programmes well before then!

You will see less delay in handling your complaints 

The time for processing customer complaints has been cut from 8 weeks to 15 business days. This increases the pressure on payment service providers to operate much more efficiently, so they have fewer complaints and find it easier and less costly to solve any problems you do have. 

You won't see the increased security

You won't see all the standards-setting and development work that's going on behind the scenes to make all of this happen in a far more secure way than payment services have worked before.

The new regulations bring mandatory technical standards for better ways to make sure customers are who they claim to be, and for the different types of payment service providers to work together where you need them to do so.

So, finally, "payments" will become less visible... if you know what I mean.

How Not To Deal With A Regulator

The 'Big Six' energy providers are actually threatening to steal the regulatory limelight from UK retail banks - which is no mean feat. Ofgem says it has levied a total of £12.5m in fines this year already. In the past few weeks alone, SSE and Scottish Power have found themselves under scrutiny from MPs. And British Gas has complained publicly that it's recent fine of £2.5m for complaints mishandling is "totally disproportionate", seeming to suggest they should've been given credit for having to spend £4m fixing the problem.

But you'd expect a little more humility from a company that is raising consumer gas and electricity prices at an average of 18% and 16% respectively, and contributed £270m of its parent's £1.3bn profit for the first half of this year. 

Ofgem explains that its complaint handling regulations include the following requirements ("the breaches Ofgem found against British Gas in this case are in bold):

• a common definition of a complaint between (sic) energy suppliers;
• a requirement for suppliers to record complaints upon receipt and follow up contact with the customer after the initial complaint;
• a requirement for suppliers to have a complaints handling procedure and be able to explain to customers how they can make a complaint;
• a requirement to signpost customers to the Energy Ombudsman if the complaint is not resolved;
• a requirement to deal with consumer complaints in an efficient and timely manner, and allocate sufficient resources to do this;
• a requirement to publish information on complaints."

Here's an explanation of Ofgem's industry governance arrangements.

And here's where to complain if you are a consumer or small business (once you've given the provider a chance to resolve the dispute).

Meanwhile, Ofgem says that it's:

"currently investigating Npower and EDF Energy for complaint handling; Scottish Power, Scottish and Southern Energy, EDF Energy and Npower for misselling; and is undertaking two investigations into Scottish Power for potentially misleading marketing and the difference between its Standard Credit and Direct Debit Tariffs."

I'm sure the suspects are bound to accept any adverse findings with good grace...

Week One: Build A Decent Framework

The first week in any new in-house role or project has many defining moments. Are you friendly and approachable, or nervous and shy? Do you listen respectfully before suggesting improvements, or arrogantly impose your own experience and expertise from the outset? Do you have a plan for how you'll approach your new role, or will you simply react to demands on your time?

One advantage to having worked in nearly a dozen businesses over the past twenty years or so is having the opportunity to experience many 'fresh starts'. Here are three steps I've learned to take each time:

1. Research the business and its products: You should've done this at interview stage (along with understanding the overall market context), but you probably didn't get the whole picture from company filings, web sites and other publicly available material. Depending on seniority, you may not get much more. Play the 'newbie' card while you can. Try to meet the lead business people and ask plenty of questions about their successes and key challenges. Ask each product manager to explain how his or her product works. Make a note of anything that surprises you - good or bad. Understand the business problem-solving methodology (if any), project planning framework (if any) and the end-to-end business processes that comprise or support the products - how customers are signed up, complaints are handled, how distribution works, the supply chains, how contractual rights are enforced. Due diligence reports, regulatory filings, major contracts, sales presentations and process maps all make great source material.

2. Figure out the top ten challenges for the business: This can be a hair-raising experience, especially in a young business or one that's poorly run. Try to be discreet, patient and under-react until you've figured out the list and considered how to align yourself with each challenge. A well-managed business will identify and prioritise its most significant challenges annually. In that case, figuring these out will involve a fairly easy discussion with the boss about the business planning cycle, the current plan and where you fit in. In other cases, there may be no clarity at all, and no process for achieving it - great opportunities for anyone with an analytical mind and a positive attitude. Clearly the annual revenue target, major product launches, acquisitions and any substantial new regulation will be likely to feature in the top ten. Addressing the organisation's substantial strengths, weaknesses, opportunities and threats should round out the list.

3. Figure out the top ten legal challenges: What the lawyers need to do should have become pretty clear by now. Of course you have to factor in your own major initiatives, like getting a handle on significant contracts, contested litigation, training and competence, ensuring appropriate records retention and so on. But some of that will be business as usual. The major challenges should involve cross-functional co-operation - including public affairs and PR.

I'm interested in your thoughts.


Image from De Madera Constructions.