Consumer duty refers to the legal and ethical responsibility of financial institutions to act in the best interests of their clients, particularly retail customers. This duty encompasses providing suitable financial products and services, offering transparent information, and avoiding conflicts of interest. Regulatory bodies often establish consumer protection regulations to ensure that financial institutions prioritize the welfare of their clients and maintain trust in the financial system.
Core Objectives of Consumer Duty
The central aim of the Consumer Duty is to ensure that financial firms place the interests of retail customers at the heart of their operations. It introduces a higher and more exacting standard of conduct by focusing not just on whether firms follow the rules, but on whether their products, services, and communications lead to fair and positive outcomes for consumers.
The Duty is structured around three key elements:
A new Consumer Principle (Principle 12) that requires firms to act to deliver good outcomes for retail customers
Cross-cutting rules that require firms to act in good faith, avoid foreseeable harm, and support customers in achieving their financial objectives
Four specific outcomes relating to products and services, price and value, consumer understanding, and consumer support
This framework encourages proactive and holistic thinking around customer needs, vulnerability, and engagement, rather than reactive compliance.
Application Across the Product Lifecycle
Consumer Duty applies to all firms involved in the design, marketing, sale, and servicing of retail financial products and services. This includes banks, insurers, investment firms, mortgage providers, and intermediaries. It requires that consumer interests are considered at every stage of the product or service lifecycle:
During product design, firms must consider the target market, ensuring products are appropriate and not exploitative
Pricing must reflect fair value, meaning the price paid by the consumer is proportionate to the benefits they receive
Communications must be clear, timely, and tailored to ensure understanding—not simply compliant with disclosure rules
Post-sale support must be responsive, accessible, and inclusive, especially for vulnerable customers
This end-to-end focus ensures that customers are not only sold suitable products but also supported throughout their journey.
Impact on Governance and Accountability
The Consumer Duty places greater accountability on senior managers and boards to oversee customer outcomes. Firms must evidence how they are delivering good outcomes by setting clear metrics, performing regular reviews, and addressing areas where outcomes fall short.
Senior managers under the Senior Managers and Certification Regime (SM&CR) must ensure that Consumer Duty considerations are embedded in decision-making and cultural practices. Boards are required to sign off on annual assessments, demonstrating that the firm has identified and responded to risks of poor customer outcomes.
Documentation, management information, and internal reporting all play a key role in demonstrating compliance and accountability under the Duty.
Implications for Compliance and Financial Crime Prevention
While primarily focused on consumer protection, the Consumer Duty also reinforces broader compliance themes. Firms must ensure that customers are not exposed to harm through inadequate fraud controls, poor onboarding, or misleading claims. This overlaps with financial crime prevention by requiring:
Transparent communication about fraud risks and protective measures
Fair treatment of victims of scams, including support and clear complaint handling
Consideration of vulnerability when designing KYC or transaction monitoring processes
Proactive action to mitigate foreseeable harm caused by financial abuse or coercion
Firms must strike a balance between enforcing AML and fraud policies and maintaining fairness and accessibility for legitimate customers.
Challenges and Implementation Considerations
Complying with the Consumer Duty requires significant operational and cultural change for many firms. Key challenges include:
Collecting and analyzing data to measure customer outcomes effectively
Updating systems, controls, and processes to meet the Duty’s standards
Training staff across all levels to understand and apply the Duty in their roles
Managing third-party relationships and ensuring outsourced services align with the Duty
Firms must also be prepared to explain and justify their approach to the regulator, demonstrating that decisions are based on meaningful evidence and not just box-ticking.
