How to meet the FCA's new Consumer Duty regulations

Amy Graham, Head of Research at brand and experience consultancy Brand Vista, provides her esssential guide
Amy Graham
Money jar

Unless they’ve been living under a rock, those working in financial organisations will have the 31st of July circled in red in their diaries. This is the date the FCA’s Consumer Duty regulations come into force for all existing products and services.

You’ve probably heard time and time again that the FCA requires financial organisations to prove that they “put consumers at the heart of their business and focus on delivering good outcomes for customers”. But what does this actually mean?

The FCA has developed ‘four outcomes’ that firms need to comply with. We’ve simplified these below.

  • Product and Service: Ensure products and services are suitable for the target audience.
  • Price and Value: ensure the price of a product and service matches the benefits to that individual customer.
  • Consumer Understanding: Provide clear communications enabling customers to make informed decisions.
  • Consumer Support: Provide good quality customer support that takes the individual customer’s needs into account.

However, just saying that you are delivering against these outcomes isn’t going to cut it – the FCA has demonstrated the need to evidence this through research. 

A key part of the Duty is that firms assess, test, understand and evidence the outcomes their customers are receiving. Without this, it will be impossible for firms to know that they are meeting the requirements”.

So how do you conduct research? Just throw a bunch of questions together and ask a few customers, right? Wrong.

The FCA wants companies to take this seriously and are looking for robust evidence. In fact, they expect companies to use testing capabilities of an equivalent standard to test other aspects of consumer understanding.

What this means is that if you’ve conducted consumer research before, whether it’s to test the appeal of a new product, to test a new TV advert, or calculate the size of a market, the FCA expect you to invest the same time and money into proving that you are delivering against the new Consumer Duty regulations.

Researching consumer behaviour isn’t easy. It’s a specialism that requires skills and expertise. There is so much more to it than showing a piece of communication and asking a few customers whether they understand it. Here are three examples of things you need to consider.

1.     Asking the right questions

Humans are tricky creatures. We don’t like to be wrong and we don’t like to admit what we don’t know. Brand Vista surveyed 2,000 UK consumers by giving them a list of typical financial words and asked them if they understood what those words mean. Let’s take the word ‘inflation’, something we’re hearing a lot about at the moment.

 When asked outright, 92% said they were confident they knew what it meant.

Our questionnaire then went one step further, and using verbal reasoning techniques, we asked respondents to correctly match the word with the definition.

Only 57% accurately identified the right definition for inflation. 

2.    Speaking to the right people 

The FCA has emphasised the need for firms to understand their target audience “at a sufficiently granular level, considering the characteristics, risk profile, complexity and nature of the product or service”. Any research conducted to evidence good outcomes needs to be amongst a relevant and representative sample. 

The FCA also highlights the need to identify and protect vulnerable audiences, be it health, life context, financial resilience, or financial capability. 

Here you need experts in sample design and sourcing to help ensure you research the right audience, ensuring the robustness of your research and evidencing to the FCA you have considered vulnerable audiences. 

3.    Digging deep

When people think of research, their go-to is surveys. Whilst surveys are a great method for providing robust measurements, they don’t dig beneath the surface.  They also don’t tackle the why. It’s all very well finding out that a piece of communication isn’t very clear, but if you don’t know why, then it’s going to be a struggle to know how to adapt and improve it.

Qualitative research, such as focus groups or one-on-one interviews, also allows you to deep-dive into consumer behaviour, and understand the wider context behind their decision-making. It provides evidence that you understand who your target audience are as people, not just numbers. In fact, the FCA suggests qualitative research as a means to getting to know your customer.

With a looming deadline and complex requirements, it’s no wonder that many are feeling overwhelmed and confused.

The key things for financial organisations to remember are: 

  • It’s likely you will be expected to evidence that you have conducted research amongst your target audience. 
  • This research needs to evidence that you understand who your target audience is and how each of your existing products and services meets the needs of this audience
  • Clarity of communication is vital and the onus is on the company to prove that communications are understood by the target audience, empowering them to make informed decisions.

Written by
July 5, 2023