2. Proactive regulation: Firms are often waiting for the regulator to intervene in issues rather than addressing them proactively. This reactive stance could lead to more complexity and additional regulatory challenges in the future. Clearly to mitigate this, firms need to adopt a forward-thinking approach, anticipating potential regulatory concerns where possible and addressing them before they escalate.
3. Data and monitoring: Effective implementation of the duty requires robust data and monitoring strategies. The FCA has warned firms against complacency, emphasising that repackaging existing data will not suffice. Firms must develop new, comprehensive approaches to data collection and analysis to meet regulatory expectations.
Challenges and unresolved issues
As the July 31 deadline for closed products and the first consumer duty board report approaches, the industry is still far from having resolved all the issues around the implementation.
Firms with indirect consumer-facing business models in particular continue to find the practical application of the duty challenging.
These models often involve complex pricing structures influenced by supply chain costs, distribution channels, and intermediary markups.
Ensuring fair pricing across different channels becomes difficult under these conditions.
Additionally, maintaining consistent product quality and brand messaging, as well as effectively communicating product information to consumers, is challenging when relying on multiple intermediaries, while collecting consistent and reliable data from various intermediaries further complicates the ability to gather and analyse appropriate management information.
Several key concerns have emerged within the industry, each presenting unique challenges:
1. Pricing and value
Managing price discrimination remains a significant issue. Firms struggle to determine what is 'fair' in pricing, given that the benchmark varies across business models and competitors.
There is a lack of regulatory guidance on suitable pricing parameters, leaving firms vulnerable to scrutiny.
Many firms have not established consistent fee pricing models, which exposes them to regulatory risks.
Segmented costs within the payment chain (eg agent fees, transaction processing fees) complicate the process of reducing costs, particularly for smaller firms.
Furthermore, the lack of transparency in pricing structures can lead to consumer distrust and potential reputational damage for firms.
2. Vulnerable customers
Identifying and accommodating vulnerable customers has created a sense of urgency within the industry.
Firms must invest in new or enhanced systems and potentially contract with third-party service providers to meet these needs.
The regulator’s communication on this issue has been perceived as rushed, providing firms with limited time to review and adjust their controls.
The management of vulnerable customers could arguably be seen as a fifth pillar of the consumer duty principle, emphasising its importance.
Additional guidance on GDPR compliance is also needed, as firms must balance the collection of sensitive data with data protection regulations.
