Conusmer Duty

The New Consumer Duty is a new Financial Conduct Authority Principle, which aims to get the financial services industry to "do the right thing" by its customers.

Bume Limited 's inherent culture is to do the right thing for its customers. Everything we do, new product design, website development, financial promotions etc has the customer at the heart of it. To ensure the customer has the most suitable product appropriate to their current needs just makes sense.

It essentially means that firms have a responsibility to ensure right outcomes for customers throughout the product cycle and their entire journey with the firm. From development and testing of a product (manufacture), suitability of the product for that consumer, sale and post-sale information (distribution) and ensuring the consumer can make an informed decision based on the information provided.

As a result of the new Principle the FCA introduced rules to ensure good customer outcomes. These rules apply to every regulated firm and apply where a firm is providing regulated products or services to consumers/retail clients.

The New Consumer Duty aims to bring about a fairer, more consumer-focused and level playing field in which:

• Firms are consistently placing consumers' interests at the center of their businesses and extending their focus beyond ensuring narrow compliance with specific rules, to focus on delivering good outcomes for Consumers.
• Competition is effective in driving market-wide benefits, with firms competing to attract and retain customers based on high standards and innovate in pursuit of good consumer outcomes, and
• Consumers receive products and services which are fit for purpose and provide fair value. They understand how to use the products/services and are supported in doing so.
• A firm should have considered the needs, characteristics and objectives of their customer - including those with characteristics of vulnerability - and how they behave at every stage of the customer journey.
• A firm must act to deliver good outcomes for retail clients, together with three "cross cutting rules" and four "outcomes".

The Consumer Duty rules require firms to evidence across the entire customer journey (cross cutting rules) or lifecycle that they are behaving in ways that deliver good outcomes for those customers.

What are the Cross Cutting Rules?

Rule 1: Acting in Good Faith Towards Retail Customers

The FCA state that acting in good faith is a standard of conduct characterised by honesty, fair and open dealing and acting consistently with the reasonable expectations of retail customers. It does not mean that firms cannot pursue legitimate commercial interests or make a profit.

Examples of where a firm is not acting in good faith would include:

• failing to take account of customers' interests, for example in offering an unsuitable or unaffordable loan to a customer or in the way information is presented to a customer;
• seeking inappropriately to manipulate or exploit customers, for example by manipulating or exploiting their emotions or behavioural biases so as to mis-lead
• taking advantage of a customer or their circumstances, for example any characteristics of vulnerability, in a manner which is likely to cause detriment.

Rule 2: Avoid Foreseeable Harm to Customers

This is not a duty to protect consumers from all foreseeable harm but to help consumers avoid those harms and enable them to take decisions based on a full appreciation of the risks.

Basically, this means firms must act to mitigate risks to consumers or to help consumers adequately understand the risks that might occur.

Rule 3: Enable and Support Customers to Pursue their Financial Objectives

A firm must act in a way that is consistent with the firm's role and knowledge of the customer to understand their needs and to facilitate their achievement to the extent possible.

Consumer Outcomes

Customer Outcome 1: Products and Services Outcome

Products are either poorly designed or offered to consumers when they should not be - unaffordable lending for example. A firm should review, and continuously monitor, the product lifecycles so they continue to meet the needs, characteristics and objectives of customers.

Customer Outcome 2: Price and Value Outcome

This is about making sure customers can buy a product safely in the knowledge that fair value has been considered and to ensure the customer receives value for money.

Customer Outcome 3: Consumer Understanding Outcome

Support customers by helping them make informed decisions about financial products and services.

This Principle does not take away the responsibility for the purchase of a product from the customer but can ensure that they endeavour to make an informed decision when deciding to purchase a product.

Firms must help customers make informed decisions, and communications must be clear, engaging and relevant, whether verbal, written, on an advertisement, or on a website, and must be easily understood by the target market.

Customer Outcome 4: Consumer Support Outcome

There is a close relationship between the consumer support outcome and the consumer understanding outcome.

Firms should:

• Provide an appropriate standard of support to customers which meets their needs
• Ensure support offered meets the needs of customers, including non-standard issues and vulnerability
• Ensure support does not impose unreasonable costs on the customer
• Regularly monitor the standard of support and make improvements where necessary