What does the Consumer Duty mean for resolving financial complaints?

Date published: 28 June 2023 Consumer Duty Speech

Abby Thomas

Chief Executive and Chief Ombudsman

Abby gave a speech at the Consumer Duty Implementation Summit, organised by City & Financial Global, on 20 June 2023.

She spoke about the Financial Ombudsman Service’s role in the consumer protection landscape and discussed how we’re ready to look at complaints involving the Consumer Duty. 

The below is an edited version of her speech, focusing on her comments about the Consumer Duty.

The Financial Ombudsman Service’s role is to deliver a first-class service for resolving financial complaints. We resolve those disputes fairly, reasonably, and with minimum formality. It's what we were set up by law to do.

‘Resolving disputes fairly’ doesn’t necessarily mean an answer in the consumer’s favour. Our duty is to resolve complaints based on what we think is fair and reasonable in all the circumstances of the case.

This remit gives us a clear position in the consumer protection landscape. It also means we’re well placed to help financial businesses navigate developments in consumer protection, like the Consumer Duty.

The Consumer Duty will help ensure a fair financial services industry

The UK’s financial landscape doesn’t stand still. And given the current economic environment, it’s more important than ever that consumers are protected. 

That’s why we welcome the Consumer Duty as a huge step forward in consumer protection. It sets high expectations for the standard of care that firms give consumers, ensuring a fair financial services industry.

The Consumer Duty is underpinned by concepts of fairness and reasonableness, similar to the fair and reasonable standard we judge complaints against already.

Because of this, we don’t expect it to significantly change the way we look at many of our complaints. Ultimately, we don’t expect it to have a significant impact on complaint volumes.

And while the Consumer Duty moves towards regulation that’s more conceptual and less prescriptive, we’re experienced in applying regulatory and legal developments to cases, as well as principle-based regulation.

This includes the current requirement on firms to ‘pay due regard to the interests of its customers and treat them fairly’.

It means that we’re well-placed to navigate the new requirements and to help financial businesses navigate them too.

We’ve worked closely with the FCA, and others in the regulatory family, to make sure we’re all prepared for the Consumer Duty.

Abby Thomas, Chief Executive and Chief Ombudsman

We’re aligned with the FCA on the Consumer Duty’s requirements

The Consumer Duty aims to deliver good outcomes for consumers. On this, everyone has their role to play. This includes the financial services industry, consumers themselves, and the regulatory family.

As the Consumer Duty is being introduced by the FCA – the regulator – it’s appropriate to consider our role as part of that regulatory family.

To the extent that our remits permit, we need to be aligned with the regulator.

So, we’ve been looking to the FCA and its published rules and guidance to help us with the Consumer Duty’s implementation, just as the financial services industry has.

But we’ve also worked closely with the regulator, and others in the regulatory family, to make sure we’re all prepared.

We’ve spent a lot of time talking to the FCA about its expectations, both as it was formulating its proposals and during the current implementation period.

We’ve also been regularly attending industry events alongside the FCA, which should help to reassure that we’re aligned.

Read more about the Wider Implications Framework and how we work with the regulatory family.

It will take time for cases involving the Consumer Duty to reach us

This engagement work won’t stop on the implementation deadline of 31 July, as we don’t expect to receive significant numbers of complaints involving the Consumer Duty until later in the year.

So, after introduction, we’ll continue to set out and share detail about our approach, working with the FCA to ensure consistency. We’ll also share insight with financial businesses.

We’ll listen to what they tell us about cases involving the Consumer Duty, and we’ll give examples and case studies that will help everyone respond to the complaints we see.

To help us share insight more generally, in relation to the Consumer Duty and beyond, we’re changing our organisation to be better aligned with the industry.

We’re doing this by creating sector-specific ‘directorates’ that cover particular areas, like investments, insurance, or banking. This makes sure that our people are where our customers need us most.

Our directorates will be homes for specialist knowledge, making it quicker for financial businesses to get answers and insight.

And as we’ve aligned our directorates closely with industry sectors, they’re able to focus on the Consumer Duty’s impact on the types of complaint that they see in their sector.

We’re tasking each of these areas to consider the approach to sharing information about relevant cases that works best for them and the customers they serve.

What’s more, these sectoral areas will share insight and learnings amongst each other after the Duty’s introduction. We have the structures in place for this to happen smoothly.

As the year goes on and we see more cases involving the Consumer Duty, our aim is to share case studies and develop workshops. This will help financial businesses navigate the Consumer Duty and complaints.

We’ll consider the lessons learned, check for consistency, and decide what improvements could be made. We’ll highlight key themes, content or decisions along the way. 

Our measured and gradual approach to implementation means that we’ll be listening to feedback, questions, and concerns at every step.

Our measured and gradual approach to implementing the Consumer Duty means that we’ll be listening to feedback, questions, and concerns at every step.

Abby Thomas, Chief Executive and Chief Ombudsman

What the Consumer Duty means for some complaint areas

While we’re already well-placed to respond to complaints we see involving the Consumer Duty, we're considering what it might mean for some areas of complaints.

One possibility is that currently, we generally see complaints about the sale of products and services, as well as the cancellation of products and services.

But following the Consumer Duty, we may see more complaints about the use of products and services. Consumers might tell us that firms should have done more to check that they were using them as intended.

We also expect to see complaints about the price and value of products in the future, which is something we already see.

For example, in recent years we’ve seen complaints about insurance price walking, where insurers increase the buildings insurance premiums of loyal – or inert – customers over time.

We’ve also seen complaints about the fairness of lenders’ standard variable rates.

And we think we’re likely to see more complaints around price and value in the future. This could particularly be in relation to products and services that don’t appear to represent good value, are outliers compared to other products, or where the pricing seems arbitrary.

In many cases, financial businesses have a legitimate reason for charging a particular price. But we expect to see consumers challenging this, particularly where they feel that other elements of the service are lacking.

That can lead them to ask why they’re paying for poor service, or limited coverage, for example. So, it’s likely we’ll be asking businesses to provide fair value assessments and to explain why the overall proposition is fair.

The FCA has given plenty of information on fair value, but these are some of the challenges for businesses:

  • evidencing fair value
  • sharing information with the consumer when they complain – it’s important that the consumer understands what happened, what’s going on, and why firms charge what they charge
  • thinking about wider considerations, as the Consumer Duty is just one factor when looking at cases – for example, in a complaint about the price of a financial product or service, there may be other legal considerations, including the law relating to unfair contract terms

But what does the Consumer Duty not require?

As well as thinking about what the Consumer Duty requires, we’re very conscious of what it doesn’t require. Particularly, we recognise that the Consumer Duty can’t – and won’t – protect consumers from all harm.

Sometimes consumers will be harmed by circumstances that weren’t reasonably foreseeable. And many products contain risk, which consumers can reasonably understand and accept, if firms have followed the requirements.

But ultimately, the Consumer Duty will be positive for both consumers and financial businesses. It will:

  • improve customer experience, financial awareness and understanding
  • encourage and enable financial businesses to develop new and better products and services
  • increase confidence in financial services and – over time – reduce complaints

While there may be new types of complaints, and it’s reasonable to expect some additional complaints in the coming months during the initial embedding process, we expect complaints to fall as outcomes and consumer experiences improve.

We’re ready for the Consumer Duty

Because of the progress we’ve made as an organisation, our close engagement with our stakeholders, and the future ambition that we have, we’re in a great position to help financial businesses navigate the Consumer Duty.

As mentioned, fairness is central to our purpose. We already decide cases based on what’s fair and reasonable.

The Consumer Duty isn’t retrospective. We look at the rules, standards, codes and good practice that were in place at the time of the event.

And as the Duty only applies to acts or omissions from 31 July, at the earliest, we’ll continue to share information about our approach and its application to complaints throughout the year.

Further resources

Our Business Support Hub is a free resource for financial businesses and professional consumer advisers. The team can give guidance on how we approach complaints.

We've previously written about how the Consumer Duty sets a higher standard of care for consumers.

Financial businesses can also read more about how we handle complaints, from initial investigation to an ombudsman’s final decision.