FCA warns firms over Consumer Duty readiness
PwC’s summary of the FCA’s assessment of firms’ plans to implement the Consumer Duty.
By Iain Young and Sarah Collins
As more retail banks and lenders introduce products such as green mortgages and ethical ISAs, they are under increased regulatory scrutiny to substantiate their ESG credentials. The FCA is consulting on a new anti-greenwashing rule, designed so that ESG product benefits are clearly evidenced and not marketed in an over-exaggerated or misleading way. The FCA’s Consumer Duty also requires firms to act in good faith when dealing with retail customers, placing further emphasis on the need for benefits to be consistently evidenced, as companies work to build trust and transparency. In this blog, we consider how compliance with the Duty’s four outcomes can be leveraged to further enhance ESG approaches.
Designing ESG products
The Duty requires a product’s target market to be clearly defined. For example, green loans may target customers looking to make sustainable purchases, such as electric vehicles or green home improvements, so firms should operate controls to remove customers whose lending objectives are outside of this target. Product review processes can be used to measure whether product applicants align to the needs of the target market. Where misalignments are identified, action and change can be implemented quickly.
The price the customer pays should reflect the value they receive. Fair value assessments will help lenders understand whether the sustainable improvements they fund align with customer value expectations. For example, if a customer takes out a green loan to install a heat pump, they may expect reduced energy bills or a reduction in their carbon footprint. If analysis suggests this value is not realised, firms should review the product’s features.
Consumer understanding, marketing and distribution
The features and limitations of ESG products need to be communicated in a way that customers can understand. For example, a green credit card may offer ethical benefits each time a customer spends. As interpretations of what is “ethical” can vary, customers should receive information on what these benefits are, the value they provide (e.g. offsetting emissions) and who provides them. Keeping this clear and concise supports informed consumer decisions. By incorporating targeted ESG measures within their Customer Understanding frameworks, firms can monitor how well ESG disclosures and features are understood, and act to mitigate greenwashing risks.
Customer support and usage
It is vital customers can access and fully utilise the product benefits. Firms may consider integrating ethical measures into their outcome testing frameworks and enabling servicing channels to deliver ESG product knowledge and support. For example, do telephony staff receive the right training to support customers on ESG products? Are ESG disclosures prominent and easily accessible on digital channels?
Scrutiny around ESG continues to grow
Recent FCA speeches and Dear CEO letters demonstrate the regulator’s broadening focus on ESG issues, and this will only heighten as the new greenwashing rule takes effect. By capturing ESG considerations in Consumer Duty implementation plans now, firms can reduce the risk of reputational harm, take early steps towards meeting anti-greenwashing rules and position themselves as trusted providers in an evolving ESG product market.
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