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Three-step plan for Consumer Duty (and other customer-focused regulation)

As financial institutions worldwide battle the headwinds of tighter monetary policy and slowing economic growth, they are having to do so in an environment of increased regulatory scrutiny. 

Last month, the European Supervisory Authorities (ESAs) laid out their requirements for the disclosure of financial products' exposure to fossil gas and nuclear energy. The Financial Consumer Agency of Canada (FCAC) recently unveiled new guidelines on complaint-handling procedures for banks. Perhaps most pressing, new Consumer Duty regulation from the UK's Financial Conduct Authority (FCA) requires financial institutions to put customer interests at the heart of their operations.

This heightened regulatory landscape presents challenges — but also opportunities to leverage customer experience for competitive advantage. Leaders will benefit from the stacked wins of reduced overheads (from better management of the regulatory risks that push cost into operations), coupled with improved brand perception and greater customer loyalty.

But, in the current fiscal environment, are financial institutions set up for success? The evidence suggests not.


The rising cost of non-compliance

In the EMEA region, despite regulators being less able to conduct onsite inspections during the pandemic, the value of financial penalties ballooned 244% between 2020 and 2021. Over the same period, the USA's Consumer Financial Protection Bureau (CFPB) reported increased complaints in almost every category, with complaints regarding credit or consumer reporting growing 122% year-on-year.

Increasingly, regulators are taking steps to ensure this lackluster state of play is not allowed to continue.

Take the UK's upcoming Consumer Duty. This sweeping regulation, impacting all regulated firms in the distribution chain of financial products, will focus on achieving four outcomes:

  • Suitable products/services

  • Consumer understanding

  • Fair price & value

  • Adequate consumer support

With breaches subject to fines and other punitive measures, the expectation is that this will lead to a major shift in financial services in the UK. Too often, however, firms' regulatory efforts are compliance-led, rather than being owned by the entire organization. This is regrettable, as customer-focused regulation like Consumer Duty can represent an opportunity to drive competition and growth based on high standards for customer service. 

A more comprehensive approach to consumer-focused regulation requires that firms do three things: understand the business case for change; leverage the right technology; and consider how they will translate insights into actions.

1. Make the case for "better than baseline"

The first step is to internalize the case for transforming your business in line with the regulation. It is easy to appreciate the level-one financial benefits of avoiding fines. But there is a more impactful business case to be made: how complying with both the letter and the spirit of such regulation can drive positive business outcomes.

Beyond reducing financial penalties, there are operational efficiencies to be gained, by implementing better processes for managing regulatory risk. Complaints management, for example, is often an inefficient workflow. Agents typically have manual processes for documenting complaints. These can result in inaccuracies and inefficiencies downstream, and teams that monitor comments inherit problems that stem from those manual processes. 

While delivering customer-focused outcomes requires a robust process for managing complaints, it is important that organizations avoid pushing unnecessary cost into their operations. 

Technology can help with this.

But, if operational efficiency represents level-two, then level-three means leveraging consumer-focused regulation as a springboard to drive differentiation and, ultimately, growth. 

Financial services is a commoditized market, where years of cost reduction have created an ecosystem characterized by a high degree of similarity in products, rates and fees. Customer service is the new battleground where loyalty can be won and lost — but, in an environment of cost control, it has historically been challenging to prioritize customer experience.

At last, consumer-focused regulation gives firms that much needed impetus to invest in experience. Not only are happy customers more receptive to cross-sell — driving greater primacy and share of wallet — they are also less likely to switch providers, leading to greater lifetime value. With customer-friendly journeys leading to higher brand reputation and higher likelihood to recommend, the business case is strong to aim not just for baseline compliance with customer-focused regulation, but for best-in-class.

2. Employ technology to do the heavy lifting

The right technology is vital for enabling the desired impacts. The way this is implemented will look different for organizations at different maturities. For institutions at an earlier stage in their customer-centric transformation, a good next step is to start capturing a steadier cadence of real-time customer feedback, across the whole range of interaction touchpoints (contact center, branch, digital, etc). 

By asking questions that map back to the outcomes enshrined in the regulation, firms can use the scores they capture as a 'north star' to monitor compliance. For most institutions, however, exponential value will come from broadening the scope of feedback. Surveys provide a valuable snapshot — and it will always be important to leverage surveys to trend post-interaction metrics over time — but, with response rates declining, surveys alone can never provide a full picture. 

Instead, Natural Language Understanding (NLU) enables institutions to learn from 100% of customer interactions.

The ability to mine chat logs, call transcripts, social media, complaints and even agent notes for insights represents a step change in the journey to best-in-class. NLU empowers financial institutions with immeasurably more coverage across customer interactions, a better understanding of root causes, and a far broader pool of ideas and suggestions to draw on when designing customer-facing innovations or remediations.

One top-four UK bank deployed NLU to understand customer complaints — why customers were complaining, and the root cause of their concerns. In this way, they have been able to eradicate root causes of customer issues much faster than they were able to before. By making structural changes to programs and policies, the bank has been able to decrease reportable complaints by 50% over three years.

3. Design consumer-focused systems of action

While technology can unlock the most actionable insights, it is up to institutions to ensure they take those actions. In some cases, this will be through automation. In other cases, institutions should think about establishing the right models to support organizational action-taking around customer-focused regulation.

Global financial institutions often provide illustrative examples of governance in customer experience — since multimarket decision-making is necessarily a decentralized process, global firms must therefore typically invest even more thought when designing their accountability frameworks. For Standard Chartered's experience program, it was critical to secure buy-in from multiple markets across Asia Pacific. In India, the team moved from capturing a snapshot of feedback every few weeks to reviewing feedback across touchpoints at a more regular cadence; while in Singapore, the team started triggering recovery engagements whenever a customer reported a bad experience at a branch.

Interventions like these require that organizations think about governance: 

  • Who at the frontline is responsible for taking immediate action to rescue a negative customer experience?

  • How will this be reinforced?

  • Who should be part of regular, cross-functional forums, where opportunities are reviewed for making process enhancements based on feedback? 

  • And how will we make decisions about where to invest?

Financial brands that can do this will be on the front foot in turning consumer-focused regulation into a catalyst for differentiation.

The consumer-centric opportunity

While new regulation undoubtedly places a burden on financial institutions, Consumer Duty and other customer-focused regulation also present huge opportunities for first-movers to disrupt a heavily commoditized market. 

For organizations that aspire to more than baseline compliance, next-level insights from NLU, coupled with the right governance, offer a compelling roadmap to market leadership and a differentiated customer experience.


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Christopher Colley

Christopher Colley

Industry-recognized CX leader

Financial Services

Member since

08 Mar 2022



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