Financial services firms will have to treat customers better under new rules to ensure products do ‘what it says on the tin’

A new consumer duty has come into effect, raising the bar for financial companies and giving customers more assurance that the product they buy does exactly ‘what it says on the tin’.

Overseen by the Financial Conduct Authority, the Consumer Duty sets higher and clearer standards of consumer protection across all financial services, requiring businesses to put customer needs at the heart of what they do.

The implications of the new levy will be far-reaching, woven from the design of financial products to the way companies treat their customers.

It is hoped that the duty will improve confidence in financial services over time.

It can help to avoid rip-offs, unexpected costs and possible future deceptive sales scandals in the first place.

Under the duty, companies will have to provide products that are fit for purpose, offer a fair price and work as expected by the customer.

The duty could also potentially help prevent people from being sold unnecessary “add-ons” to financial products, preventing them from wasting money.

Companies must also be able to explain and justify their pricing decisions.

Nisha Arora, director of transversal policy and strategy at the FCA, said: “People need to know what they are paying and know what they are getting for what they are paying.”

When asked what consumers will see of the higher standards, Ms Arora said companies will need to actively support and empower their customers to achieve their financial goals.

“It’s about helping their customers, rather than sitting back,” she told the PA news agency.

“If we translate that into practice and the whole consumer journey, if I want a product or a service then I know it’s right for me, it’s right for use, it’s the right thing for me and it offers fair value, so I don’t get ripped off.

“I will also receive communication at the right time, which I can understand and which can help me make decisions.

“It’s very important that consumers are still looking for the best deals, but companies need to give them the right information so they can make those decisions.”

Businesses will be under the duty to provide helpful and responsive customer service and be timely and clear in the way they communicate.

Processes for complaining, switching and canceling products should also be simple.

Ms Arora said: ‘What we (companies) want to do is make it as easy to switch, to complain, to move a product or service, as it is to get in, and not have to go through all those hoops and hurdles going to make things happen.’

There are some recent signs that companies are improving their pre-tax savings offerings following criticism from several sources that rate hikes were not being passed on quickly enough.

The new rules overseen by the UK’s Financial Conduct Authority aim to prevent rip-offs and unexpected charges

Under the obligation, the FCA expects companies to have a strategy to keep savers adequately informed about the rates available for their products and how they can benefit from switching to an alternative.

Along with the Information Commissioner’s Office (ICO), it recently wrote to UK Finance and the Building Societies Association (BSA), clarifying that savings providers can inform their customers of the best rates available to them, even if they have objected to instant marketing.

Ms Arora said: ‘In all markets, including the savings market, consumer taxation will require that all products have fair value. If there are different groups of customers, each of them should be given a fair value.

“They may have different rates, but they should all be fair value. And most importantly, the communication needs to be there to empower and support customers. (Companies) must provide them with the correct information.

“If someone has a lower rate, they should point them to better rates that may be available. Now it’s up to the customer to decide what to do and to look around.’

The needs of vulnerable customers are also at the center of the new duty.

The FCA’s Financial Life Survey previously found that adults with traits of vulnerability were more likely to report that customer service didn’t help them achieve what they wanted to do at all.

Ms Arora said businesses are expected to understand the needs of vulnerable customers, adapt and be flexible.

She said, “It can be about designing products that are appropriate for the market, it can be about communicating in a way that is helpful and supportive.”

Asked if there is a risk that companies will be more inclined to ‘screen’ some customers for products, Ms Arora told PA: ‘We have taken this very seriously because what we don’t want are unintended consequences with products that are either withdrawn from the market or customers are refused suitable products.

‘However, if a product is unaffordable or not suitable, then we obviously do not want it to be offered to the customer.’

She said the regulator has already taken several steps, including being very clear and supporting companies, so “actually these are higher standards, but they are achievable for companies.”

Businesses are expected to keep their customers informed about the benefits of switching products under the FCA’s new consumer tax

Ms Arora also pointed out that the communication requirements for businesses under the new duty will help consumers access products.

Companies are preparing for the new task and the regulator expects companies to have had clear top-down supervision of their implementation plans.

The FCA supports companies with guidance, webinars and letters.

Ms Arora said: ‘I am very pleased with the progress many companies have made to prepare for this. But we will be ready to enforce if we see non-compliance that causes harm and causes harm to consumers.

“We have started our monitoring and we will continue to collect data from companies. We will be ready to oversee and enforce to ensure duty is really driven home.”

Rocio Concha, Which one? director of policy and advocacy, said: “Whether you have a bank account, insurance, mortgage, take out a credit card or take out a loan, the consumer duty is clear that companies must ensure that the product and service meet the needs of the customer. offers fair value and that customers have enough information to make an informed choice and are supported throughout the process.

“The duty must have far-reaching consequences. In practice, this should mean that the terms and conditions of insurance policies are understandable, that banks alert customers to better interest rates on savings and that lenders proactively help mortgage customers in financial difficulties with tailor-made support.

‘Which? expects the regulator to enforce strict if companies do not meet the required standards.’