Today we have quite a bit of general feedback on the Chancellor’s Mansion House speech, so let’s kick off with this short article. More later and over the weekend;
Matt Austen, Consumer Duty Lead for Kroll’s Financial Services and Regulatory Division comments on the Chancellor’s call for reform of the UK system for consumer redress:
“The Chancellor’s Mansion House speech has shed light on the Government’s plans to reform the UK consumer redress system. This is a positive step towards clarifying the roles of key bodies like the FOS and FCA, who not only impact consumer protection, but also UK economic growth and market competitiveness.
“It is crucial that a careful balance is struck here, as the coin has two sides. Consumers, who generally lack the resources or expertise to challenge large financial services firms need strong representation, to ensure that their complaints receive fair treatment. But at the same time, UK-regulated firms need to benefit from clearer guidance from the FOS, particularly when they are thinking of breaking new ground with an innovative idea.
“Firms, understandably, want predictable outcomes to better assess their own risks, to handle complaints fairly, and to maintain compliance. Where FOS decisions feel inconsistent with the FCA’s regulatory requirements, they become unpredictable, making it hard to navigate the boundaries of the regulatory framework. Consistent guidance would help firms anticipate likely outcomes and protect customers – a win-win situation for all, but this would require a change to the FOS, and perhaps the FCA’s, own mandate.
“The FOS’s consumer-friendly approach can bring potential liabilities for financial firms, particularly when thematic issues gain attention and drive an increase in complaints. These trends can stretch firms’ resources and have the ability to raise significant liabilities for individual firms – and entire sectors – which underscores the importance of consistency in decision-making and clear expectations.
“Following the Chancellor’s call for change to FOS, firms should prioritise staying informed about the specific changes and their implications for business practices. One way to do this is to ensure open communication is maintained with compliance and legal advisers to assess the financial and operational impacts of any change in approach. Firms may also wish to consider engaging in any consultation process that may occur, offering a voice in helping to shape the UK’s regulatory landscape.
“Firms should already be closely monitoring FOS decisions to identify any shifts in expectations. This insight can then be played back into the Consumer Duty loop, for instance, to reassess whether last month’s identified foreseeable harms are now viewed differently. FOS decisions do offer firms valuable information, that all too often isn’t mined and utilised to its fullest.
“Firms should start to consider the likelihood of carrying out a redress exercise and to assess their operational ability to deliver this in an efficient, fair and robust manner. Firms who have not carried out such an exercise on a large-scale basis can often fail to appreciate the challenges this can bring, such as the ability to identify all affected customers, data accuracy, and the delicate process of rebuilding trust with those customers impacted.
Consumer Duty impact:
“Whilst it is still fairly early days for Consumer Duty, our client work suggests it is already shifting priorities within the industry. For example, some clients have a renewed focus on longer-term customer value, considering factors such as how their products or services may promote financial stability and consumer wellbeing, especially to those who may be more susceptible to vulnerability at certain interaction points.
“Balancing profitability with increasing costs of compliance is always a challenge, and Consumer Duty has, for many firms, resulted in further compliance costs, and for smaller firms these costs can be harder to absorb. As a result, it is imperative that firms prioritise investment in compliance and align this with business growth to meet regulatory standards while supporting their long-term health.”
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