The FCA’s Consumer Duty, Financial Service Firm Readiness & Technology


Many customers are currently suffering with high inflation and interest rates.

While that’s easy to say and observe, it’s often hard to quantify what that means in practice and how many customers are materially impacted.

However, in the past few years, Financial Conduct Authority (FCA) here in the UK consumer financial vulnerability follows.

Their research found that as of May 2022, nearly 13 million or 24% of all adults in the UK had ‘low financial resilience’, which they describe as being in a state where, should they experience a sudden change in their personal financial circumstances, they would would struggle to pay their domestic bills and meet their credit obligations.

Alarmingly, this number has increased by more than 2 million adults since their February 2020 Financial Lives survey.

This is not surprising given the effects of the pandemic and the significant increases we have seen in the cost of living over the course of 2021, 2022 and into this year.

But these figures only apply to customers who are financially vulnerable. If we take into account the FCA’s four causes of frailty (ill health, recent negative life events, financial resilience and low capacities), the number of vulnerable UK adults rises to almost 25 million or 47% of the adult population.

That’s a big number.

In response to this and what is labeled as “one of the biggest consumer finance shakeups ever in the UK”, the FCA is introducing new rules and guidelines (consumer tax) on July 31 of this year for banks, building societies, insurers, investment companies and many other companies under its jurisdiction.

This regulations will require companies to act to deliver good outcomes for retail customers in terms of products and services, price and value, customer understanding and customer support.

In addition, the FCA’s new rules will “require companies to consider the needs, characteristics and objectives of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the customer journey. Companies not only need to act to deliver good customer outcomes, but they also need to understand and demonstrate whether those outcomes are being achieved.”

What does that mean for customers?

Let’s say, for example, that a customer wants to switch to a new product, but has to pay a high exit fee. That fee would now be in violation of the new rules of the FCA.

Or suppose a customer wants to cancel a product, but is told to physically go to a branch to do so. That requirement would now also violate the new rules of the FCA.

In addition, customers can also complain if they feel they have not been treated fairly according to the new rules. And if the FCA finds that there was unfair treatment or risk of harm to a customer, the offending company can expect strong action in the form of interventions, investigations or possible disciplinary sanctions.

It’s not yet clear what those interventions or sanctions might look like, but to give some context, the FCA has imposed nearly GBP 1.5 billion ($1.87 billion) in fines over the past five years, with the largest fine for a single organization in over GBP 260 million ($324 million).

But it’s not just the customer’s responsibility to point out where they may have been mistreated. The FCA will also require companies to monitor and report on customer outcomes.

Now when you look at the number of interactions (calls, emails and messages etc.) that a bank or other financial services company will have with their customers on a daily, weekly or monthly basis, monitoring and reviewing all those interactions is a huge function .

I spoke with Darren Rushworth, chairman of NICE Internationalto better understand what this means for financial services companies.

He told me that when new regulations come into effect, companies traditionally rely on employees, consultancies or suppliers, who employ hundreds of people, to go through all their calls to assess whether they have complied with the guidelines or not. and whether corrective action has been taken. must be taken.

That is a very costly exercise, which in itself often constitutes a real disincentive to any meaningful change, with some companies often preferring to pay fines rather than make changes to the way they do business.

But when it comes to the new FCA regulations, Rushworth believes things are different and that “it is going to be very, very difficult for organizations to implement these regulations, especially when it is people who are involved in deciding whether something complies or not compliant.”

He illustrated this with an example of a UK insurance company that, relying on their own practices and best efforts, was able to identify only 20% of customers who would be considered vulnerable under the FCA’s new duty of care.

In response to these changing requirements, NICE has developed and built into their Illuminate AI analytics platform a suite of analytic models specially trained and tuned to analyze and highlight interactions with vulnerable customers.

This allows them to automatically score and classify each interaction, better understand where action needs to be taken to ensure compliance, provide real-time guidance to agents as they interact with customers, and uncover underlying product, process, or skill-related issues that are the root cause of vulnerability and complaints.

The aforementioned insurance company recently implemented NICE’s Enlighten AI for Vulnerable Customers analytics solution, and in just a few weeks they increased their ability to identify vulnerable customers from 20% to 80%. Moreover, that number is getting better and they now only use people to look at the most serious cases.

The moral of the story, according to Rushworth, is that “treating your consumers with a fair and reasonable duty of care is impossible without some degree of trust without technology.”