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Millions of pounds is going into in consumers’ pockets amid improvements in financial firms’ practices, a boss at the City watchdog has said.
Sheldon Mills, executive director of consumers and competition at the Financial Conduct Authority (FCA), was speaking as the next phase of a duty which puts obligations on financial firms to improve consumer protection standards gets under way.
The date also marks a year since the consumer duty was launched by the FCA for new and existing products and services that are open for sale or renewal.
Mr Mills said the duty “is already having a tangible impact on consumer outcomes”.
From Wednesday, the duty is also in force for closed products and services.
These are older products that were sold before July 31 2023 and have not been marketed or sold to new customers since. The FCA gave firms an extra year to get to grips with the complexity of older systems and the increased work involved.
In a speech in London on Wednesday, Mr Mills said: “We see the duty as good for consumers, good for firms, and good for growth in the economy.
“Over the past year, we’ve seen many examples of positive and impactful changes. We’ve shared much of this great practice so others can learn from it. And we’ve also said where firms need to do more.
“In our cash savings work, following our market review, we’ve seen firms act more quickly to increase rates following base rate increases. The base rate rose by 0.25 (percentage points) between July 2023 and February 2024.
“During this time, firms, on average, increased rates for easy access deposits by 0.45 (percentage points).
“We estimate consumers will get around an additional £4 billion in interest payments per year – money they can save or reinvest, use to pay down any debt, or that might boost spending in the wider economy.”
Mr Mills also said customers will save around £70 million following an intervention around GAP (Guaranteed Asset Protection) insurance.
The duty is already having a tangible impact on consumer outcomes. And it has been driving improvements in firm culture, conduct and governance too, which over time will drive better outcomes still— Sheldon Mills, Financial Conduct Authority
“And, following our work on the treatment of interest on cash balances by platform investment providers, the vast majority of firms written to as part of the sample have stopped ‘double dipping’ – that’s making a return on interest retention as well as charging customers for custody of cash,” he added.
“Aggregating the impact across 13 of those firms that have stopped this practice, we estimate this will put around £10 million annually in fees back in customers’ pockets.
“So the duty is already having a tangible impact on consumer outcomes. And it has been driving improvements in firm culture, conduct and governance too, which over time will drive better outcomes still.
“Firms we’ve spoken to have developed new data and metrics to better understand their customers; for example, to track customers who fall outside of their target market, allowing them to conduct outreach or implement intervention measures.
“Others still have improved the way they capture and record information about customer vulnerabilities and expand support to better meet customer needs by adopting a ‘tell us once’ approach.
“Some firms have changed their employee bonus structures to make sure that incentives are right, and employees only get good outcomes when their customers do.
“We are also seeing firms being more proactive with their communications, contacting customers to provide information on what better products may be available, and monitoring the impact so they can learn and improve. And many are rewriting those communications to make them simpler and easy to understand.”
The duty requires firms to put their customers’ needs first, with timely communications and products and services that work as expected.
Firms should also be able to explain and justify pricing decisions, including being able to show that rates offer fair value.
We're going to be closely monitoring how firms are complying with the duty. We will of course be acting swiftly and assertively where they aren't— Graeme Reynolds, Financial Conduct Authority
The duty also aims to support vulnerable customers. Companies should be taking into consideration how they adapt their communications to meet the needs of customers with characteristics of vulnerability.
Mr Mills said: “This is just the beginning of the journey, not the end. And it’s clear that there are a number of areas where firms need to continue to make improvements. So we know there is much more to come.”
He said the duty is “deliberately flexible” and allows space for firms to innovate and find new ways of serving their customers “while being clear on our expectations for good consumer outcomes”.
He added: “At the FCA, we want to see growth.”
On Tuesday, Graeme Reynolds, director of competition at the FCA, told the PA news agency that July 31 “marks a key milestone for us in the consumer duty journey”.
He said the duty is particularly important “as people deal with the increased cost of living”.
“We’re going to be closely monitoring how firms are complying with the duty. We will of course be acting swiftly and assertively where they aren’t,” he said.
“And our message very much to consumers is: If you’re unhappy with any aspect of your financial services, of course complain to your provider, and if you’re not happy with the response you get then the Financial Ombudsman Service is there as well to deal with any of those concerns.”
He said the consumer duty “is very much an important part of our regulatory toolkit”.
We want to help firms resolve complaints fairly first time, without the need for a case to come to us, which is why we share insight for businesses to identify ways to improve their systems or processes— Abby Thomas, Financial Ombudsman Service
Abby Thomas, chief ombudsman and chief executive at the Financial Ombudsman Service, said: “Over the last year, we’ve continued to take action where we think businesses haven’t treated customers fairly, and in line with the requirements under the duty.
“I urge firms to ask themselves whether they’re supporting their customers in the way they’d expect to be supported in the circumstances.
“We want to help firms resolve complaints fairly first time, without the need for a case to come to us, which is why we share insight for businesses to identify ways to improve their systems or processes. This should reduce more complaints further down the line.”
