The FCAs Consumer Duty, Financial Service Firm Readiness & Technology

Many customers are suffering right now with high inflation and interest rates.

Now, while this is easy to say and observe, it is often difficult to quantify what this means in practice and how many customers are materially affected.

However, over the past two years the Financial Conduct Authority (FCA) here in the UK has been tracking consumers’ financial vulnerability.

Their research found that in May 2022, almost 13 million or 24% of all UK adults had what they call ‘low financial resilience’, which they describe as a state where they would suffer a sudden change in their personal financial circumstances, then they would have difficulty paying their domestic bills and meeting their credit commitments.

Alarmingly, this number has increased by more than 2 million adults since its 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 throughout 2021, 2022 and into this year.

But, these numbers only take into account those customers who are financially vulnerable. If we take into account the FCA’s four vulnerability factors (ill health, recent negative life events, financial resilience and low ability), then the number of vulnerable adults in the UK rises to almost 25 million or 47% of the adult population.

That’s a big number.

In response to this and what is being described as “one of the biggest transformations of consumer finance in the UK”, the FCA will introduce new rules and guidance (Consumer Duty) for banks on 31 July this year, construction companies, insurance companies, investment companies and many other companies that belong to their domain.

These rules will require businesses to act to deliver good outcomes for retail customers covering products and services, price and value, customer understanding and customer support.

In addition, the new FCA rules “will require firms to consider the needs, characteristics and objectives of their customers, including those with vulnerable characteristics, and how they behave, at every stage of the customer journey. As well as acting to deliver good results for customers, companies will need to understand and test whether those results are being achieved.”

So what does this mean for customers?

Well, let’s say, for example, that a customer wants to switch to a new product but faces a large exit fee if they do. This fee would now breach new FCA rules.

Or, for example, suppose a customer wants to cancel a product but is told that to do so he must physically go to a branch. This requirement would also breach the new FCA rules.

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

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

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

Now, if you consider the number of interactions (calls, emails and messages, etc.) that a bank or other financial services institution will have with its customers on a daily, weekly or monthly basis, then monitoring and evaluating of all these interactions is very important. work

I spoke to Darren Rushworth, Chairman of NICE International, to better understand what this means for financial services organisations.

He told me that traditionally, when new regulations are introduced, companies often rely on employees, consultants or suppliers, who employ hundreds of people, to make all their calls to assess whether they have adhered to the guidelines or no and if there is any corrective action. must be taken

This is a very expensive exercise, which in itself is often a real disincentive against any meaningful change, as some companies are often happier to pay fines than make any changes to the way they do business.

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

He illustrated this using the example of a UK insurance company which, based on its own practices and best efforts, could only identify 20% of customers who would be considered vulnerable under the new FCA consumer duty of care.

In response to these changing requirements, NICE has developed and integrated into its Enlighten AI analytics platform a range of analytical models that have been specifically trained and tuned to analyze and highlight interactions with vulnerable customers.

This allows them to automatically score and rank each interaction, better understand where action needs to be taken to ensure compliance, provide real-time guidance to agents when dealing with customers, and discover underlying issues based on which products, processes or skills are factors of vulnerability and complaints

The insurance company mentioned above recently implemented NICE’s Enlighten AI for Vulnerable Customers analytics solution, and over the course of just a few weeks, they increased their ability to identify vulnerable customers from 20% to 80%. Also, this number is continuously improving, and now only humans are deployed to examine 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 to do with any level of trust without technology.”

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The Financial Conduct Authority (FCA) is putting greater focus on when and how financial service firms must be ready to meet the needs of their consumers. To fulfill this duty, firms must assess their current state of readiness, take advantage of new technologies, and adhere to a changing regulatory landscape. Ikaroa, a full stack tech company, is well-positioned to help financial organizations assess their readiness, leveraging innovative technologies to develop solutions that are tailored to their unique needs.

When assessing their readiness, financial service firms should look at the areas of customer communications, cyber security, data security and regulatory compliance. They must also ensure that they are properly harnessing the power of technological advancements, such as cloud computing, blockchain, and artificial intelligence, to maintain their competitive edge.

Ikaroa offers tailored, comprehensive solutions to financial organizations looking to remain compliant with FCA regulations. Our team of experienced professionals has developed custom solutions that are designed to keep firms compliant with ever-changing consumer protection, risk assessment, and anti-money laundering legislation. We recognize that firms benefit from specialist knowledge in these areas – particularly in complex and rapidly changing regulatory environments – and are committed to helping organizations stay ahead of the curve.

Moreover, our technology-driven approach ensures that firms can manage their customers data securely, protect their customer information, and easily communicate with their customers. Ikaroa helps organizations to develop strategic solutions by understanding their goals, assessing customer preferences, leveraging big data, and transforming customer engagement. By leveraging our cutting-edge technology, we guide firms through every step of the journey, from initial assessment to implementation, offering a comprehensive suite of services.

At Ikaroa, we are passionate about providing financial service firms with the resources they need to ensure compliance with FCA regulations and meet the needs of their customers. Our solutions help financial firms mitigate risk while simultaneously optimizing customer engagement, providing a comprehensive approach to meet the FCA’s Consumer Duty. We are committed to helping firms throughout their evolution, as they strive to maintain their competitive edge in financial services.


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