Why July 31 is not ‘the Final Countdown’ for New Consumer Duty Rules

Over the past year, the financial sector has been adjusting to a new regulatory environment. On July 31, 2023, the Financial Conduct Authority (FCA) introduced new Consumer Duty rules that obligate financial institutions to communicate complex financial information to consumers in a comprehensible way.

The rules aim to increase the standard of care for consumers, prioritising customer-centric communications in finance so that firms put the needs of their customers above all else. July 31, 2024, marks the second, and final, deadline of the FCA rules. From that date, companies must ensure all closed products and services are compliant with the rules, in addition to open products and services that came under the regulation last year.

Although the deadline is drawing closer, in many ways the road to compliance has only just begun. The new FCA standard of care doesn’t just represent a ‘one and done’ tick box for compliance. Instead, banks and financial services institutions must enact continuous improvements in their communication strategies that go far beyond the baseline set by the FCA.

Raised regulatory sea level

For many years, consumers have been on the receiving end of confused, unclear communication strategies that use multiple channels such as email, letters and mobile notifications. Research found that less than one in ten consumers could correctly identify what they would be charged when presented with a letter on changes to overdraft charges. This is particularly concerning considering the respondents had an average overdraft of £484.

Misunderstanding financial information due to unclear communications has serious implications for millions of people. This is underlined by research from UK housing charity Shelter, which found that half of UK working renters are now living paycheque to paycheque.

The issues of ensuring organisational stability and protecting the rights of consumers laid the foundations for the new Consumer Duty rules. However, the FCA recently found that just 30% of UK firms between Spring and Autumn last year identified or made significant improvements to their marketing strategies.

Banks not compliant with the new Consumer Duty rules are putting themselves at substantial risk of regulatory action from the FCA, including fines and redress for harmed customers. To avoid these reputational and financial consequences, organisations should be making long-term changes to their customer communications approach.

Strategies for effective communication

The Lindy theory suggests that the longer technology has been in existence, the more likely it is to stay in existence, but technology that endures often relies on its ability to adapt. For example, the telephone was invented more than 150 years ago but has adapted from the top box to the landline to mobile phones. The same is true with customer communication. Businesses that can successfully evolve their communication strategy will meet ever-changing customer needs and achieve prolonged commercial success.

But revenue, growth and profitability no longer represent the only metrics used to define business success. Long and meaningful customer relationships are highly dependent on delivering the right message, on the most relevant channel, at the best time. Banking and financial services organisations should take a personalised approach to customer experience. Not only can fixing a business’s communication strategy improve regulatory compliance, but it can also play a significant role in attracting new customers and retaining existing ones.

Businesses need a way to segment their customer base and use the vast amount of information they hold to personalise communications. However, this data is likely to be stored on multiple systems. Organisations should therefore be using solutions that can access and pull customer data existing on both legacy systems and new technology. With Quadient and Signal finding that just 53% of consumers believe they have a high understanding of communications from banks, using customer information and preferences is crucial for an individual to not just read a document, but to comprehend it.

As an example, the Bank of England may announce a decrease in interest rates, significantly impacting the terms of a variable, fixed-term savings account. Customer experience technology can now pull information from multiple internal sources and segment customers into groups that will be impacted by the change. A bank can use this information to communicate urgent messages to a customer through the right channel. By providing clear, concise financial information, the recipient will not only be aware of the changes but will understand how it directly affects them. This level of comprehension is essential for organisations to comply with the good customer outcomes mandated by the new Consumer Duty.

The changing face of customer communications

The Consumer Duty rules laid out by the FCA are deliberately amorphous to ensure that business communications adapt to changing customer needs in the future. That continuous adaptation must be built into the daily culture of all financial institutions and underpinned by technology that helps to deliver results every day.

Rather than treating the final compliance date of July 31, 2024, as a one-off project, financial organisations should view it as the starting gun. The FCA has sounded the klaxon for customer-centric communications. It’s now up to banks and financial institutions to invest wisely so that customer expectations are continuously exceeded.