Date: 19 April 2023
By Josif Grace
What is the Consumer Duty regulation?
Consumer Duty regulation is set to bring significant changes to the UK’s financial services industry. The regulation, designed to ensure that financial firms act in the best interest of their customers, will create a more transparent and fair environment for consumers. The regulation will also make it easier for consumers to access the products and services they need, and technology is set to play a significant role in making this happen.
The needs of our customers
One of the key aspects of Consumer Duty regulation is the requirement for financial firms to focus on the needs of their customers. This means that firms will need to consider the potential outcomes of their products and services, and ensure that they are not selling customers something that is not suitable for their needs. For example, banks and other financial institutions will need to ensure that they are not selling complex financial products to customers who may not fully understand the risks involved. The regulation will also require firms to provide clear and concise information about their products and services, making it easier for consumers to understand what they are getting.
The role of technology
Technology is set to play a big role in making this happen. Many financial firms are already investing in technology to improve the customer experience, and the new regulation is likely to accelerate this trend. For example, the use of artificial intelligence (AI) and machine learning (ML) is likely to become more widespread, as firms look for ways to better understand their customers and provide more tailored products and services. This could include the use of predictive analytics to identify when a customer is likely to need a particular product or service, or artificial intelligence to identify the changing needs of a customer as they go through key life stages.
One area where technology is already having a significant impact is in the area of Open Banking. Open Banking allows customers to share their financial data securely with other companies, which can then use this data to provide more personalised products and services. For example, a customer may choose to share their data with a budgeting app, which can then use this data to provide insights into their spending habits and suggest ways to save money. Open Banking has paved the way for Open Data, a customer may choose to share their data with a planning app, which can then use this data to provide personalised suggestions and insights into a broad range of life planning decisions, such as when your car insurance is set to expire, your Broadband promotional period is ending, or there has been a change to your Energy Bill. Legado’s platform is an example of a leader in the open data space. Open Data is still in its early stages, but it has the potential to revolutionise the way that consumers access financial products and services. Another area where technology is likely to have a big impact is in the area of financial advice. Under the new regulation, financial firms will need to provide advice that is suitable for their customers’ needs. This could include the use of robo-advisors, which use algorithms to provide tailored investment advice to customers. Robo-advisors have already become popular in the US, and they are likely to become more widespread in the UK as firms look for ways to provide more cost-effective advice.
The use of technology will also make it easier for consumers to access financial products and services. For example, the use of mobile banking apps is already widespread, and this trend is likely to continue. Many firms are also investing in digital platforms that allow customers to apply for products and services online, making the process quicker and more convenient. This is particularly important for younger customers, who are more likely to use digital channels to access financial products and services. Applications which incorporate Open Data solutions will be able to provide more meaningful and relevant suggestions for products and services to customers.
Consumer Duty regulation is set to bring significant changes to the UK’s financial services industry. The regulation, which requires financial firms to act in the best interests of their customers, will create a more opportunities for firms like Legado, which can accelerate firms on their journey to Consumer Duty compliance, whilst also helping firms to understand customer on a deeper and more meaningful level.