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How consumer duty regulations will affect financial services marketers: ‘A significant influence’

Industry experts emphasize that marketers will play a pivotal role in ensuring the accurate implementation of new regulations set forth by the retail banking regulator, aimed at enhancing transparency and customer service. These experts also underscore the importance of meticulous deliberation regarding the manner in which these regulations are communicated.

How consumer duty regulations will affect financial services marketers: 'A significant influence'

Recently introduced regulations in the retail banking sector are intended to transform the culture and procedures within the industry, with the regulator’s objective of addressing the mistrust that arose due to incidents like the mis-selling of payment protection insurance. While the efficacy of these regulations in delivering improved customer outcomes remains uncertain, their profound impact on the expectations placed upon marketers in financial services brands is undeniable.


Introduced under the recently revealed “Consumer Duty” guidelines by the Financial Conduct Authority (FCA), which are already in effect, businesses are obligated to ensure that their offerings provide equitable value to customers. The FCA emphasizes that this entails preventing customers from being subjected to unfair charges or unanticipated expenses.


Additionally, brands are anticipated to furnish “helpful and accessible customer support,” as outlined by the FCA, signifying that resolving issues, switching, or canceling products should be as straightforward as the initial purchase process. Furthermore, brands are expected to provide timely and clear information to facilitate sound financial decision-making.


Moreover, financial service providers are required to offer products and services suitable for customers, rather than promoting unnecessary ones. They are also urged to be more considerate of vulnerable customer situations, which could involve health or financial challenges.


This stricter approach has been implemented following a report from the FCA in May, which revealed a surge of 3.1 million people encountering difficulties in meeting credit repayment deadlines and settling bills over the past year, resulting in a total of 10.9 million affected individuals.


The FCA asserts that companies should be forthright, prevent harm, and assist consumers in attaining their financial aspirations.


The unveiling of the FCA’s Consumer Duty is set to bring about a significant transformation in the realm of financial services marketing, according to Alastair Pegg, former Marketing Director of the Co-operative Bank and former Head of Brands and Marketing at Nationwide Building Society. Pegg notes that this regulation’s central aim of fostering more equitable outcomes for consumers has prompted financial institutions to recalibrate their marketing strategies, placing a stronger emphasis on transparency, accountability, and a customer-centric approach.


Alex Sword, the Editor at the Financial Services Forum (FSF), a community of financial services marketers, asserts that marketers will play a pivotal role in implementing these changes. Sword underscores that communications must now be comprehensible to customers, devoid of misleading information, and tailored to assist them in making advantageous choices.


Nonetheless, Sword doesn’t anticipate a sudden and drastic transformation in the immediate future. He attributes this to businesses having anticipated these shifts for a considerable duration. Furthermore, Sword highlights that many marketers already prioritize customer-centric approaches as a fundamental aspect of their efforts to compete and succeed in the industry.


According to him, engaging in product promotion that harms consumers, even if legally permissible, is detrimental to building a brand’s reputation. He emphasizes that the most noticeable effects might not be seen among well-established banks or asset managers, but rather within entities like unscrupulous lenders.


As pressure has intensified on financial service firms to treat their customers more ethically due to past scandals and the strain of rising living costs, such as increased mortgage payments and utility bills, the situation has become more demanding. Pegg states that marketing departments within these firms have been advocating for customer-focused approaches for years across all facets of the customer journey. Yet, he adds that their pleas have often been met with minimal compliance to the Treating Customers Fairly (TCF) rules introduced in 2007 by the now-renamed Financial Services Authority.


With the new guidelines in place, brands are required to be more precise in their actions, leading to a transformation in marketing messages that underscore responsible lending, impartial advice, and customized product offerings. Pegg acknowledges that this regulation presents challenges for marketers, in terms of compliance and adaptability, which might take time to fully integrate. However, he asserts that it should eventually elevate the standards of the financial services sector and encourage a more ethical and customer-centric approach to marketing.


Numerous organizations have highlighted their customer-centric approach as a unique selling point, according to Pegg. The impact of the new regulations will be of particular interest to these companies: “The regulations might erode their distinctive quality,” he suggests.


While the changes are being positively received, not everyone sees them as an entirely positive development. Lisa Wood, a former marketer for First Direct and Atom Bank who now works as a consultant and senior partner at Open Velocity, remarks that it’s “encouraging to witness the FCA applying pressure,” but simultaneously laments the fact that the industry itself hasn’t taken the initiative to self-regulate and ensure fair treatment for customers.


“We had hoped that the emergence of challenger banks would compel established players to alter their behavior,” she adds. “Yet, they continued to support their traditional profit models. Now, with the FCA directly exerting pressure, there’s a chance the situation is changing. However, in this era, it shouldn’t require a regulatory authority to enforce basic principles of sound business practice.”


The Consumer Duty will necessitate marketers to reconsider their communication strategies with customers. Johnson notes that on a daily basis, marketers must challenge themselves to ensure that consumers comprehend their communications by testing readability and accessibility through various methods.


She further emphasizes that many will need to delve deeper into the outcomes associated with communications, including assessing product adoption, engagement rates, and the surrounding complaints data, to determine if the product aligns with customer needs.


Marketers will be grappling with assessing the concrete impact of the new guidance on their practices. According to Johnson, there will be a steep learning curve in the short term, but it should ultimately result in a significant and lasting shift where customer welfare becomes the foremost priority.


Sword from the FSF suggests that optimists believe this will lead to improved consumer outcomes, while pessimists view it as an additional regulatory burden to prove compliance with practices they were already following. He acknowledges that this will be particularly challenging for smaller firms with limited resources.


However, he believes that the new regulations are a positive development, not only benefiting customers but also enhancing trust in the industry.

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