Consumer Duty for Banks and Payment Firms: What the FCA Now Expects

The FCA Consumer Duty represents the most significant shift in the FCA's approach to conduct regulation in over a decade. Implemented through PS22/9, the Consumer Duty sets a higher standard of care that firms must provide to retail customers — requiring firms to act to deliver good outcomes rather than merely avoiding causing harm. The Duty came into force for new and existing products and services on 31 July 2023, and was extended to closed products and services on 31 July 2024. It applies to all FCA-authorised and registered firms providing products and services to retail customers, including banks, building societies, payment institutions, electronic money institutions, consumer credit firms and investment firms. This article explains what the Duty requires, how the FCA is assessing compliance, and what banks and payment firms must do to embed the Duty effectively.

What Is the Consumer Duty?

The Consumer Duty is a new regulatory standard introduced by the FCA under its rule-making powers in FSMA 2000. It comprises the Consumer Principle (Principle 12): "A firm must act to deliver good outcomes for retail customers." This replaces the previous standard of "treating customers fairly" (Principle 6) for firms to which the Duty applies. The Duty is supported by three cross-cutting rules requiring firms to: (1) act in good faith towards retail customers, (2) avoid causing foreseeable harm to retail customers, and (3) enable and support retail customers to pursue their financial objectives. These cross-cutting rules are operationalised through four outcomes that firms must deliver across their entire product and service lifecycle. The Duty applies at every stage: product design, marketing, sale, ongoing service and exit. It is not a point-in-time compliance exercise — it requires continuous assessment, monitoring and improvement.

Who Must Comply with the Consumer Duty?

The Consumer Duty applies to:

• Banks and building societies providing retail deposit, lending and payment products
• Payment institutions providing payment services to retail customers
• Electronic money institutions issuing e-money to retail consumers
• Consumer credit firms providing lending, broking or debt services to retail customers
• Investment firms providing advice, portfolio management or execution services to retail clients
• Insurance firms and intermediaries distributing products to retail policyholders
• Firms in the distribution chain that can influence customer outcomes — even if they do not have a direct relationship with the end customer

For payment institutions and EMIs, the Consumer Duty applies alongside existing conduct obligations under the PSRs 2017 and EMRs 2011. Where the Duty and the payment services regulations overlap, the FCA expects firms to meet whichever standard is higher. In practice, the Duty imposes additional requirements beyond the PSRs/EMRs — particularly around product value assessment, consumer understanding and consumer support.

Key Regulatory Requirements: The Four Outcomes

Outcome 1: Products and services. Firms must design products and services that meet the needs, characteristics and objectives of their identified target market. This requires a target market assessment for every product — identifying the intended customer, their needs, and how the product meets those needs. Products must be tested to ensure they work as expected and deliver the intended outcomes. Products that create foreseeable harm — for example, complex fee structures that erode value for customers who do not fully understand them — must be redesigned or withdrawn. For payment institutions, this means assessing whether payment services are designed to work for the target customer, including customers with characteristics that may make them vulnerable.

Outcome 2: Price and value. Firms must ensure that their products and services provide fair value to retail customers. The FCA defines fair value as a reasonable relationship between the price paid and the benefits received, taking into account the quality of the product, the firm's costs, and the target market's characteristics. Firms must conduct a fair value assessment for every product — and must be able to demonstrate that the assessment has been performed and documented. For payment firms, this includes assessing whether transaction fees, foreign exchange margins, account maintenance charges and other costs represent fair value relative to the service provided. Cross-subsidisation models must be assessed to ensure that one group of customers is not bearing disproportionate costs.

Outcome 3: Consumer understanding. Firms must ensure that their communications — including marketing materials, terms and conditions, fees disclosures, product documentation and service notifications — enable customers to make informed decisions. Communications must be clear, timely and presented in a way that the target customer can understand. Technical or legal language that obscures key information is non-compliant. For digital banking and payment products, this extends to app interfaces, in-app notifications, onboarding flows and fee disclosure screens. The FCA has criticised firms that present essential information in ways that require customers to navigate multiple screens or click through excessive layers.

Outcome 4: Consumer support. Firms must provide support that meets the needs of their customers — enabling customers to use products, address problems and switch or exit without unreasonable barriers. Support channels must be appropriate for the target market, accessible to customers with vulnerabilities, and sufficiently resourced to respond within reasonable timeframes. The FCA has been particularly critical of firms that make it easy to buy products but difficult to complain, switch or close accounts — the "sludge practices" identified in the FCA's review.

The Consumer Duty Implementation Process

Step 1 — Product-level assessment. Review every product and service against the four outcomes. For each product: define the target market, assess whether the product meets target market needs, conduct a fair value assessment, review all customer-facing communications, and evaluate the consumer support experience. Timeline: ongoing — refreshed at least annually.

Step 2 — Board governance and MI. Establish board-level oversight of Consumer Duty compliance. The board must receive regular MI covering customer outcomes data — complaint volumes and root causes, product performance data, value assessment results, customer understanding metrics and support channel performance. The board must challenge and act on this data. Timeline: immediate and ongoing.

Step 3 — Board attestation. The board must produce an annual Consumer Duty attestation confirming that the firm is delivering good outcomes for retail customers and that the Duty is embedded in the firm's culture, governance and operations. The first attestations were due by 31 July 2024.

Step 4 — Complaints root cause analysis. Implement systematic root cause analysis of customer complaints, identifying patterns that indicate systemic failures to deliver good outcomes. Where root causes are identified, remediation must be implemented promptly. Timeline: ongoing.

Step 5 — Ongoing monitoring and improvement. Establish ongoing monitoring of customer outcomes using quantitative and qualitative data. This is not a one-off compliance exercise — the FCA expects continuous assessment and improvement.

Common Mistakes and Why the FCA Has Criticised Firms

The FCA's first Consumer Duty review, published in 2024, found widespread shortcomings in implementation. The most common failure was treating the Duty as a compliance or documentation exercise rather than a substantive change to business practices. Firms produced policies, frameworks and assessments but did not change the actual customer experience. The FCA was clear: the Duty requires changes to what firms do, not just what they document.

Second, inadequate fair value assessments. Many firms performed superficial value assessments that compared their prices to competitors without analysing whether the price-to-benefit relationship was reasonable for the target customer. The FCA expects genuine analysis — not benchmarking alone.

Third, customer support "sludge practices." The FCA criticised firms that make it easy to open accounts or purchase products but create barriers to complaining, switching or closing accounts. Long hold times, complex cancellation processes and inadequate digital support channels were specifically identified.

Fourth, insufficient board engagement. Some boards approved Consumer Duty frameworks without understanding the substance of the requirements or the data needed to assess compliance. The FCA expects boards to actively challenge management on customer outcomes — not rubber-stamp compliance reports.

What Firms Should Do Now

1. Review the board's Consumer Duty MI pack — ensure it includes outcome-specific data (complaint root causes, value assessment results, customer journey metrics, support channel response times) rather than generic compliance reporting.
2. Conduct a thorough fair value assessment for every product and service — analyse the relationship between price, cost, quality and customer benefit, and document the assessment with clear methodology.
3. Audit all customer communications for clarity — test key documents, app screens and notifications with representative customers from your target market to validate that they enable informed decision-making.
4. Review customer support journeys — map the experience of complaining, switching, closing accounts and resolving disputes, and eliminate sludge practices that create unreasonable barriers.
5. Prepare the annual board attestation with substantive evidence of good outcomes — the attestation must be more than a statement of compliance; it must be supported by data demonstrating that outcomes are being delivered.
6. Implement systematic complaints root cause analysis and ensure identified root causes are addressed through process or product changes, not just individual complaint resolution.

Regulatory Context and Outlook

The FCA has stated that the Consumer Duty is its "flagship reform" and will be the primary lens through which it assesses firm conduct going forward. The FCA's 2024/25 Business Plan identifies Consumer Duty as a cross-cutting supervisory priority — applying to all regulated sectors and all forms of supervisory engagement. The FCA is investing in data analytics to identify firms and sectors where customer outcomes are poor, and will use its supervisory and enforcement tools to intervene. The FCA has also published sector-specific Consumer Duty expectations for payments, banking and consumer credit. For payment institutions and EMIs, the FCA has been clear that the Duty applies alongside PSRs 2017 and EMRs 2011 conduct requirements — and that the Duty may require a higher standard than existing regulations in some areas. Firms that have embedded the Duty effectively will experience a more constructive supervisory relationship; firms that have not will face increasing regulatory challenge.

Regulatory Counsel provides Consumer Duty implementation support for banks, payment institutions and EMIs — including board advisory, fair value assessments, MI framework design, complaints root cause analysis and annual attestation preparation. Firms seeking specialist support with Consumer Duty compliance can contact Regulatory Counsel for a free initial consultation. See our compliance support service for details.