Consumer Duty Explained
The Consumer Duty directs the actions of firms operating within the financial sector and outlines the standard to which the Financial Conduct Authority will hold the firms it regulates. As a major piece of consumer duty regulation, it sets clearer expectations for how financial services firms must treat retail customers.
The Consumer Duty is therefore central to FCA compliance, helping businesses avoid regulatory penalties while supporting strong customer outcomes and long-term success. So, what is Consumer Duty?
What is FCA Consumer Duty?
Consumer Duty is guidance created by the FCA on the treatment of customers in the financial market. In simple terms, the consumer duty means that firms must consistently act to deliver good outcomes for retail customers. The guidance sets standards for consumer protection by firms and ensures firms can help consumers attain their financial objectives by putting consumers’ needs at the forefront of their service.
What Date did Consumer Duty Start?
In the FCA’s own words, the new Consumer Duty being implemented will lead to a ‘major shift in financial services’. The Duty, which will come into play on the 31st July 2023 for new and existing products open to sale or renewal, and the 31st July 2024 for closed products, sets stricter standards for firms. This new standard is expected to encourage more competition and innovation amongst firms within the financial sector, as well as making it easier for the FCA to identify those not meeting Consumer Duty financial services standards.
Benefits of Consumer Duty
The Consumer Duty aims to improve the standard of consumer protection across financial services by requiring firms to focus on delivering good customer outcomes. This is why Consumer Duty is important: it raises the standard of care firms must demonstrate across product design, pricing, communication, and support. For firms, this means greater transparency around pricing, clearer communications, and stronger oversight of product value and customer support.
While the Duty raises regulatory expectations, it also helps firms build trust with customers, strengthen governance, and reduce the risk of poor outcomes that could lead to regulatory intervention or reputational damage.
How Does Consumer Duty Apply to Firms Throughout the Distribution Chain?
The Consumer Duty applies to all UK firms which have an effect on the design or operation of retail products and services, in order to deliver customer outcomes. This helps clarify who the Consumer Principle under the Consumer Duty applies to, extending responsibility across the entire distribution chain. This includes the price and value of the product or service, and customer support and communication.
Firms do not necessarily have to have direct contact with customers to fall under the Consumer Duty requirements.
Acting in Good Faith
To act in good faith is to act with honesty, fair and open dealing, and consistency with the reasonable expectations of customers, according to the FCA.
Firms are required to act in good faith under the Consumer Duty, so as to deliver customer outcomes.
What Are Consumer Duty Board Champions?
Like the current 11 principles, once the 12th principle comes into effect, firms will need to abide by it in order to be FCA compliant. This includes monitoring customer outcomes and further taking measures to improve products and services to make certain good outcomes are being achieved.
How Will the Consumer Duty and the 12th Principle of Business Provide Better Consumer Protection?
The FCA expects a champion to be appointed to the board of every regulated firm, although this can be done in a way which is compatible with the existing roles and responsibilities of the board, and board set up. Consumer Duty board champions are responsible for ensuring the Consumer Duty is mentioned in relevant discussions, ensuring the firm continues to recognise and meet the standards of the Consumer Duty.
Definition of Closed Products
As previously mentioned, the enforcement of the new Consumer Duty for firms depends on the status of open or closed products. Consumer Duty closed products include products or services which are no longer sold nor marketed to customers and are not available for renewal.
Consumer Duty Impact
The main impact of the FCA consumer duty is:
- Enhanced consumer protection:
- Increased transparency
- Accountability
- Improved customer outcomes
Overall, the impact of the FCA consumer duty is expected to lead to a more consumer-focused financial services industry, with increased protection, transparency, and accountability for customers.
Consumer Duty Outcomes
The Consumer Duty is supported by four key outcomes which firms must deliver for retail customers. These outcomes form the key elements of Consumer Duty and provide a practical framework for how firms should deliver good customer outcomes.: products and services, price and value, consumer understanding, and consumer support. These outcomes focus on ensuring products are suitable, represent fair value, are clearly explained, and are supported by effective customer service. To understand each outcome in more detail, read our full guide.
What is Consumer Duty Principle 12?
Consumer Duty Principle 12 is the Consumer Principle introduced by the Financial Conduct Authority (FCA). It requires firms to act to deliver good outcomes for retail customers, placing greater focus on customer outcomes across products, pricing, communications, and support. To learn more about how this principle works in practice, read our full guide here.
What Are the Expectations for Consumers vs the Expectations for Firms?
Under the Consumer Duty, the duties of consumers are still expected to take responsibility for their financial decisions. However, the FCA does recognise that this is dependent on the integrity of the firm’s products and services. Therefore, firms are expected to treat consumers with honesty, fair and open dealing, and act in a way which informs the consumers ability to meet their needs and financial objectives. For a more detailed explanation, read our full article.
At Automotive Systems, we support car dealerships with FCA‑compliant software designed to help dealer groups provide compliant sales processes. We also provide tailored training on FCA Consumer Duty principles, helping your team feel confident when supporting customers.
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