Why Consumer Duty demands a change in bank culture

20 June, 2023Paul Stallard

Consumer Duty effectively means that banks and financial services companiesclient-meeting can no longer just say they act to deliver good outcomes for their retail customers. Going forward, they must prove it and to do that a lot of change is needed.

Why is the new Consumer Duty needed?

In the past we have witnessed numerous banking scandals and many highly questionable and sometimes unethical practices which have resulted in a massive loss of customer trust and highlighted the need for change in the culture of UK banks. Consumer Duty aims to address many of these issues and reshape the way banks operate.

Consumer Duty aims to make the fair treatment of customers a core priority for banks. It seeks to ensure that banks act in the best interests of their customers, provide products and services that meet their needs, and treat them with respect and fairness. The emphasis is upon transparency, accountability, and responsible behaviour from banks with the intention of restoring trust and confidence.

How can banks be more customer-centric?

Consumer Duty provides an ideal opportunity for banks to revisit and potentially reinvent their businesses models, strategy, and cultural positioning to better compete with other highly innovative and successful banks, and non-banks.

Whatever they decide to do, most UK banks will need to undergo a significant cultural shift. Traditionally, banks have focused on profit maximisation and shareholder interests. However Consumer Duty necessitates a transition towards a customer-centric approach, where the needs and well-being of customers are prioritised. This shift requires a change in mindset, values, and behaviours at all levels in an organisation.

Essentially banks will need to adopt a proactive approach to understanding customer needs and this understanding should permeate all areas and functions within the organisation.  

There should be an increased and on-going investment in more robust market research and development. The whole purpose behind this is to get much closer to customers to really understand their needs and wants. It is crucial we know what customers want rather than assuming or thinking we know.

More regular face-to-face interaction with customers will significantly help banks develop and position customer-centric products and service offerings. Building a customer-focused culture will foster a previously absent level of empathy, where employees genuinely listen and understand customer concerns in order to provide personalised solutions. Currently 70% of customers say they are looking for their banks to offer them personalised products and services.

Also, banks cannot assume digital communications will answer every problem a customer has. Whilst many problems with banking are likely to be shared by many people, it must be remembered that every problem is unique to each customer. Some people may well be able to solve their queries via online FAQs or chatbots but others will want the comfort of receiving information from a human voice. We know that is not being achieved currently, by the number of people complaining about not being able to speak to someone at their bank.

Accountability, ethics and transparency in banking

An essential requirement of Consumer Duty is promoting transparency and ethical behaviour within banks. This means providing clear and concise information to customers, enabling them to make informed decisions. Banks must also review and simplify their terms and conditions, ensuring they are accessible and easily understandable – this alone is no mean feat and should be well underway by now.

More than anything banks must be truly accountable for their actions. Consumer Duty demands responsible lending practices, discouraging predatory lending and unfair practices that exploit vulnerable customers. They must establish robust mechanisms to handle customer complaints, demonstrating their commitment to resolving issues promptly and fairly.

Governance and regulatory compliance

Banks must also align their internal governance structures and practices with the proposed Consumer Duty framework. They will need to establish stronger compliance structures to ensure adherence to regulations and ethical standards. This includes comprehensive training programs for all employees and other appropriate stakeholders, promoting awareness of the Consumer Duty's principles and expectations.

Consumer Duty represents a significant milestone in enhancing consumer protection within the banking sector. While banks have made notable progress in preparing for this regulatory change, many challenges remain. Banks must continue investing in technology, refining their marketing practices, and strengthening internal controls to meet the transparency, fairness, and accountability requirements. By developing a selfless, open, and highly customer aware culture whilst embracing regulatory compliance, banks will regain lost trust, protect their consumers, and contribute to a more resilient banking industry.

Related content

Find out more about our banking qualifications