The Financial Conduct Authority (FCA) of the United Kingdom has recently introduced a groundbreaking New Consumer Duty, scheduled to become effective from 31 July 2023 for all existing products and services.
This initiative marks a significant step in enhancing the quality of consumer outcomes within the financial services sector.
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What is the New Consumer Duty?
The New Consumer Duty represents a comprehensive set of rules and guidelines that require companies to actively strive for favorable outcomes for their retail customers.
This duty is founded upon four key outcomes:
- Customers should have access to communications that are not only understandable but also assist them in making well-informed decisions.
- Products and services need to be carefully designed to align with customer needs and offer equitable value.
- Customers should be able to depend on the accuracy of the information provided to them, and be safeguarded against fraudulent practices and mis-selling.
- Customers must be able to receive the assistance they need quickly and efficiently.
What does the New Consumer Duty mean for companies?
Businesses now have a responsibility to carry out a thorough review of their range of products and services, as well as the overall consumer journey. This review process is crucial to ensure compliance with the requirements of the new consumer duty. This review may require changes in a number of areas, including the methods used to design, market and sell products and services, and the strategies used to communicate with and support customers.
What does the New Consumer Duty mean for consumers?
With the new consumer duty, consumers can expect a significant improvement in the standards of service and protection provided by financial service companies (financial advisories, banks, car leasing companies, etc…). These companies are now obliged to put their customers' needs first and treat them fairly.
What are the implications of the New Consumer Duty for banks and financial advisories?
This obligation extends to all businesses that play a significant role in shaping or influencing customer outcomes in the financial services sector. This broad range includes banks, building societies, credit unions, investment firms, insurance companies and mortgage brokers.
Banks and financial advisory firms are now required to carry out a full review of their products, services and customer interaction channels. This review must ensure compliance with the new consumer duty, which could lead to changes in product design, marketing strategies, sales techniques, customer communication and support methods.
Banks may need to:
- Ensuring that account agreements are simple, written in plain English, and that customers fully understand the terms and conditions before the account is opened.
- Provide succinct and clear information on the costs and risks associated with different banking products and services.
- Offer customers the opportunity to obtain independent financial advice before committing to a loan or other credit product.
- Ensuring that customers are treated fairly and providing them with the necessary support whenever they need it.
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Financial advisory firms may need to:
- Ensuring that investment advice is personalised to meet the unique needs of each client.
- Provide clients with transparent and straightforward information on the risks and rewards associated with different investment products.
- Regularly monitor clients' investments and keep them informed of any changes that may affect their financial situation.
- To treat customers fairly and provide appropriate assistance in a timely manner.
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Overall, the New Consumer Duty is a beneficial development for consumers and firms alike in the banking and financial advisory sectors. It aims to ensure that consumers are treated justly and have access to products and services that are well-suited to their needs.
What are the implications of the New Consumer Duty for car leasing?
Car leasing companies are also required to carry out a thorough review of their products, services, and customer relationships. This review will assess their compliance with the New Consumer Duty and may necessitate alterations in how they design, market, and sell their leases, as well as their communication and customer care strategies.
Car leasing companies may need to:
- Ensure that lease contracts are written in clear and simple English, so that customers can understand all the terms and conditions before signing.
- Treat customers fairly and offer assistance if needed.
- Assess the consumer's financial capacity before entering into a lease.
- Take account of the consumer's income, expenses and other financial commitments.
- Provide the consumer with clear and concise information on the costs of the lease, including monthly payments, interest and additional charges.
- Give consumers the opportunity to seek independent financial advice before entering into a lease.
This new requirement aims to protect consumers from excessive debt and to ensure that they can honour the financial commitments they make. Car leasing companies that fail to comply with this new requirement could face penalties from the Financial Conduct Authority (FCA).
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Conclusion
The New Consumer Duty is a landmark in the regulation of the financial services sector in the UK. It aims to improve outcomes for consumers and ensure a level playing field across the board. Businesses are now encouraged to re-evaluate their product offerings, services and customer engagement strategies to align with this new regulation.
Uniify can help banks, financial advisers and car leasing companies comply with the new consumer duty. We offer tailored solutions to streamline your onboarding process and help you comply with regulatory requirements.
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