Consumer Duty implementation: good practice and areas for improvement

We have seen firms:

• Alter their company purpose to signal to staff that their actions and behaviour should focus on customer outcomes.
• Accelerate business changes to deliver better customer outcomes. For example, some firms have paid more attention to service level metrics for call abandonment rates, root-cause analysis of complaints and customer satisfaction surveys, taking action to improve standards.
• Ensure responsibility for good customer outcomes is understood and owned across the business – not just by risk and compliance teams but by those involved from product design through to post-sale support.
• Increase focus on the customer at Board level, with firms’ senior leadership teams giving serious consideration to what the Duty means for them at a practical and cultural level.
• Update staff bonus structures to ensure that incentivisation is in line with the aims of the Duty.
• Develop new data and metrics to better understand their customers. Introduce appropriate governance so that action is taken where problems are identified.

We have seen firms:

• Where the Duty is primarily driven by programme teams or risk and compliance colleagues, and isn’t discussed at Board level. Firms need to ensure that the focus on good customer outcomes is understood at all levels, in their strategies, leadership, and people policies.
• Wait to see if we will intervene to address an issue – rather than tackling it themselves. This is likely to cause firms more complexity in the long run, especially if consumer redress becomes due. The Duty requires firms to proactively identify and address issues and risks of harm.
• Who need better data and monitoring strategies. Firms should not be complacent and assume that they can just repackage existing data. We want firms to think seriously about what information they need to really understand their customers’ outcomes and issues they may be facing.

We have seen firms:

• Consider the needs of customers with characteristics of vulnerability as part of product and service design. For example, some firms have found different ways of supporting those who are elderly, such as by using ‘selfies’ for identity verification to confirm they are not being scammed.
• Fully review their approach, systems and processes, centralising operations relating to vulnerability. This has resulted in improved and more consistent:
  
  • handling of vulnerable customers by specialist staff
  • capturing of data and identification of trends
  • quality assurance and compliance monitoring to make processes more efficient, effective, and focused on customer outcomes
  • outcomes for individual customers due to better-quality interactions with firms
• Review their communications and make changes to support vulnerable customers. For example, offering literature in alternative formats (such as braille, audio or with enlarged text) and making typographical changes so literature is more engaging (such as by using different colours or fonts). Firms have also considered whether information is appropriate to customer groups with lower financial literacy or where English is not their first language.
• Using customer data, such as problematic trading patterns, to identify potential vulnerabilities. This information is passed to staff trained to address sensitive issues, such as gambling addiction, and appropriate communications are sent to those customers.
• Improve the way they capture and record information about customer vulnerabilities or expand support to better meet customer needs. For example, introducing a data flag to identify and monitor outcomes for customers who have requested documents in an alternative format. One mortgage firm now allows brokers to pass on details about customers who may need help managing their home loans.
• Turn off productivity targets for customer service staff if someone is identified as vulnerable. This encourages staff to take time to provide a bespoke service catered to that customer’s needs.

We have seen firms:

• Fail to address identified weaknesses in processes to track vulnerable customers across multiple product sets and gaps in data and servicing capabilities. Firms should be able to identify where particular groups of customers – especially those that are vulnerable – receive poorer outcomes than other customers and take action to address this.
• In the investment market, not prioritise identification of and support for vulnerable customers. In some cases, this does not even appear to have been considered. For example, our recent wealth data survey showed 49% of portfolio managers and 69% of stockbrokers identified no vulnerable customers among their customer base. Our recent Dear CEO letter to wealth and stockbroking firms pointed out that 50% of us will be classed as vulnerable at some point. This means it is likely that every firm will at some point deal with customers in vulnerable circumstances. We are concerned that firms are not thinking widely enough on vulnerability.
• Automatically assess all consumers over a certain age as vulnerable. While age is relevant to vulnerability, a generalised approach risks firms not tailoring support to reflect individual needs.
• Asking consumers to identify themselves as vulnerable and then unnecessarily requesting evidence of this. We have also seen firms telling those who identify as vulnerable that it might affect their ability to receive the service. This is a barrier to identifying vulnerability and ensuring consumers get the support they need.
• Asking consumers to repeatedly disclose their additional needs or personal circumstances when passed between teams. Firms must avoid causing foreseeable harm. This includes the impact of being asked to disclose their personal circumstances on a consumer’s mental wellbeing and ability to engage with their provider.

We have seen firms:

• Carefully and precisely define the target market for products and services that could cause harm if sold to the wrong consumers. Firms have then ensured those products and services are sold correctly. For example, redesigning sales journeys to be clearer on the types of customers and needs products are appropriate for. Others have introduced new products to meet different customer needs.
• Refine their data and monitoring capabilities to track customers who may have bought a product or service despite falling outside of the target market. This allows firms to contact them or take other measures to avoid consumer harm.
• Adapt products and services to deliver additional benefits for their customers. For example, by introducing controls to limit exposure to financial loss and avoid the risk of foreseeable harm to customers.
• Identify products and services that were only available to customers through limited sales channels, and make the product available more widely where they meet the needs of a broader range of their customer base.
• Make positive changes to their product development processes, with greater focus on how new products will meet the needs of a specified target market and deliver good outcomes for them. For example, one firm introduced ’11 golden rules’ for designing new products linked to Duty requirements. Some firms have increased emphasis on consumer research and testing to help ensure products work well.
• Reconsider their role in distribution chains and take steps to support good outcomes for the customer even if they do not have direct relationships with consumers. In one example, we saw an investment firm identify it has a small number of institutional clients with retail customers in the chain and offer alternative investment options more suited to them.
• Simplify their product offer so there are not products with similar or overlapping features, where this benefits customers. This makes it quicker and easier for consumers to identify and access the products they need.

We have seen firms:

• Not share information effectively across supply chains. We want firms in the same distribution chain to share relevant information with each other. This will help firms to quickly address issues to prevent consumer harm and deliver good outcomes. For example, manufacturer firms need to inform distributors of the characteristics of a product or service, its target market and the value it is intended to provide to customers. And, to support manufacturers reviewing a product or service, distributors need to provide relevant information to them. Firms in a distribution chain should consider what information they need from each other, with the joint goal of delivering good outcomes for the customer.
• Not pay close enough attention to ensuring that their distribution strategies are driving good customer outcomes. In general, firms are responsible only for their own activities and do not need to oversee the actions of other firms in the distribution chain. However, in some situations, firms do need to consider actions by other parties in the distribution chain. For example, a manufacturer firm must consider how it expects a product to be sold and regularly monitor the product and its distribution over time so that it can deliver good customer outcomes. So, for instance, if a lender finds third-party brokers are not distributing its loans in line with its intended distribution strategy and target market, it must consider appropriate action. While the lender is not responsible for the activities of third-party brokers (save where CONC 1.2.2 applies), it may, for example, need to provide additional information to brokers to ensure the loans reach the right borrowers. Again, this type of situation is unlikely to arise where firms are working well together.
• Fail to grasp that they might have a role in a distribution chain, what that role is, and what it means for their responsibilities. For example, where a firm has a material influence over retail customer outcomes but is in a distribution chain and does not have a direct relationship with the end retail customers, it will still be subject to the Duty.

We have seen firms:

• Examine whether the total cost to consumers of their products and services – including fees, charges and other costs – provides fair value relative to their benefits. Firms have made changes to improve their value proposition by reducing costs for consumers by:
  
  • updating pricing models for products and services. For example, reducing the rate of interest paid on certain credit products and/or for certain types of customers
  • reducing or removing charges for certain products or ongoing services where these were deemed too high relative to the benefits provided
  • putting controls in place for certain groups or customers, for whom charges over a certain amount do not offer fair value, to improve value and remove these charges
  • moving some investment clients away from more expensive bespoke models to simpler model portfolios, where they are better suited to the size of the customer’s investment
• Enhance the benefits of products and services to improve value. For example, by:
  
  • increasing the amount of interest paid for certain savings and investment products
  • improving the benefits offered by products and services. We have seen some insurance firms enhance product cover to include new benefits, such as physiotherapy and virtual medical care, widen the definition of certain terms in policy wordings to cover more eventualities, or increase product cover limits at no additional cost
• Cap fees for long-term clients and waive fees entirely where firms could not justify the product’s cost.
• Consider whether the customer receives fair value across the distribution chain. For example, firms no longer recommending an intermediary where the amount they charge is above a certain level or ending agreements with distributors where they are concerned about value to the customer. Other firms have restricted the ability of distributors to mark up pricing or have capped commission payments to them.
• Take steps to monitor or close products where their value proposition risks causing poor customer outcomes.

We have seen firms:

• Fail to show that products offer fair value to retail customers. For example, some firms have relied solely on an assessment of similar product offerings in a market. This alone does not prove that the customer is getting a good deal. We also see statements being made about value, without any qualitative reasoning outlining why a firm considers that its product offers fair value. Our rules and guidance set out factors that firms must consider to assess if a product or service provides fair value. This includes the nature of the product or service and the benefits it provides, any limitations, and the expected total price customers will pay. We also set out other factors firms may consider including their costs to manufacture or distribute the product or service, and the cost of similar offerings in the firm’s portfolio.
• Unable to justify what benefits they provide for the remuneration they receive. We expect firms to be able to explain their remuneration practices and how they are proportionate to the work they do.
• Add fees along the distribution chain that might mean the overall cost to the end consumer does not represent fair value. This is likely to be particularly relevant where there are long or complex distribution chains with multiple fees added by multiple parties.
• Charge customers for a service they are not benefiting from. Some firms are providing – and charging for – ongoing services to customers who don’t need it. In the worst examples, some customers are paying for a service, such as an annual review, and not receiving it.
• Structure investment products and services in a way that benefits firms rather than focusing on value for the customer. For example, some firms are failing to consider the amounts customers invest and the value they receive for the risks they are taking. We have also seen value assessments that are disproportionately firm focused without being viewed through the lens of the customer.
• Fail to share sufficient information to enable other firms in the distribution chain to properly assess value to the end retail customer or understand what the firm is doing where it considers a product does not provide fair value.

We have seen firms:

• Work with experts to improve their communications across different channels and increase customers’ understanding of their products and services. For example by:
  
  • changing the layout and presentation of content to improve clarity and boost customer understanding
  • simplifying the language used, with one firm rolling out a ‘jargon buster’ library across its business to help simplify documents
  • improving the accessibility of websites, making it easier for customers to navigate to contact details for further support. One firm has added a new email address to its ‘contact us’ webpage and now offers outbound calls in some cases, including to support vulnerable customers
• Develop customer understanding frameworks to support good outcomes. For example, one firm considered how the way it marketed its loans could exploit customers’ behavioural biases. They then took steps to provide more balanced information and moderate its incentivisation to customers with higher risk profiles.
• Redesign customer journeys, focusing on how consumers behave in practice and risks of harm, to better support understanding. For example:
  
  • identifying where customers could be subject to fees and charges and adding ‘in the moment’ prompts and push notifications during the customer journey to advise of these costs
  • an insurance firm adapted its approach to highlight its policies’ exclusions on its website before customers start their application, so it’s clear up front what the policy doesn’t cover
  • a bank added a webpage with a clear list of what’s included with its current account product, as well as an equally prominent list of what isn’t
• Update customer interaction points and materials, such as call centre scripts, and deliver training so that staff are better equipped to support customer understanding.
• Be more proactive with their communications to support better customer outcomes. For example, we have seen firms use data to identify customers not earning enough interest/cashback to cover product fees. They made these customers aware of their options, and monitored the impact of these communications on customer behaviour.
• Develop ways to test customer understanding such as surveys, experiments, and interviews. For example, one funeral plan provider tested 14 documents across its customer journey with customer focus groups to make sure they understand their options to change or cancel their funeral plan. Others have created ways to monitor the impact communications have on behaviour.

We have seen firms:

• Undermine customers’ trust by pushing products or services that are too high-risk or complex for them. For example, we have seen investment portfolio managers take advantage of long-established relationships with clients to play down the risks of portfolios which are not aligned to their client’s risk profile but benefit the firm. All firms, including those that provide 'execution-only’ services, have a responsibility under the Duty to promote their products and services in a way that supports good outcomes. A consumer with a better understanding of a product or service will make better decisions.
• Be unclear with customers about what charges apply, and when. One way to improve customer understanding is to provide worked examples of product and service costs.
• That approve financial promotions, including those approving promotions for qualifying cryptoassets, make little reference to the Duty in our interactions with them. Firms need to ensure that they are considering the Duty and its requirements when approving financial promotions. 

We have seen firms:

• Make changes to ensure the same level of support offered to new customers is available to existing customers.
• Review customer journeys and remove negative obstacles and ‘sludge’ practices that make it more difficult for customers to act in their own interests. In one example, a consumer credit firm removed certain incentives and changed the way consumers take out credit online, to support better and more active decision making. Firms have also made changes to enable customers to exit products through a wider range of channels.
• Introduce positive interventions to customer journeys. For example, a consumer credit firm now directs online customers to speak with an agent to receive tailored support where there are indications they may struggle to keep up with repayments, avoiding customers overstretching and setting up unsustainable repayment amounts. Other firms have introduced new, flexible repayment plans to support customers struggling to keep up with their credit repayments.
• Create additional engagement touchpoints with customers to prompt them to make better decisions. One firm has also updated its terms and conditions to include a commitment to let customers know if there are savings accounts with a better interest rate.
• That outsource their support offering take steps to ensure this meets the Duty standard. For example, a firm switched its third-party consumer support provider due to service challenges.
• Put processes in place to monitor the support they provide and identify areas for improvement. For example, one firm launched an online panel which enables customers to provide feedback. Customers who join get regular invitations to online surveys where their views shape product and service development. One firm identified that individuals who act as Power of Attorney couldn’t service all products in the same way customers could; this firm made changes to ensure these individuals now have the same options as the account holder.

We have seen firms:

• Not train staff well enough in terms of having complex conversations with customers. We expect firms to train their staff to an appropriate level so they can support good outcomes for their customers, for example by understanding their circumstances and finding appropriate and tailored solutions where needed.
• Use business practices akin to ‘gamification’ on online trading applications platforms. These practices can cause consumer harm by encouraging risky short-term trading, including brokerage deals that may not deliver fair value for customers. Firms must design and deliver customer journeys that support good outcomes.
• Not take the time to understand customer circumstances where they are in financial difficulty. This may mean that customers do not receive a forbearance solution appropriate for their circumstances or advice about other relevant sources of help, including support for customers with characteristics of vulnerability. This can lead to non-financial costs, such as stress and unnecessary delays.
• Not have sufficiently robust systems to protect and help consumers from loss of investments, savings or personal data due to fraud or cyber-attacks. We expect firms to have robust systems and controls to avoid causing foreseeable harm to customers, and to provide prompt and appropriate support for victims of fraud.