From the 31 July 2023 the Financial Conduct Authority’s (FCA) new Consumer Duty guidelines set higher and clearer standards of consumer protection across financial services and require all UK regulated firms to put their customers’ needs first.

The rules will apply to all products and services provided to both business-to-consumer (B2C) customers and retail clients, including Small-to-Medium Enterprises (SMEs). The guidance also applies to ‘all firms who determine or have a material influence over customer outcomes – not just those with a direct customer relationship,' meaning that third-party vendors or partners may also fall under the guidance.

Consumer Duty is essentially a set of principles that requires firms to act to deliver ‘good outcomes’ for retail customers, as well as provide evidence that these outcomes are being met.

Companies involved in the provision of consumer credit will need to ensure they’re doing everything they can to ensure good outcomes for customers, both in respect to those applying for loans and finance, and existing customers who may be showing signs of financial difficulty. Having access to sufficient credit reference data to make an informed decision on affordability will therefore be crucial, as will lenders’ ability to demonstrate they did everything possible to determine eligibility and make lending accessible to those that can afford to pay it back. Consumer Duty will likely also work the other way too, making firms more accountable when a loan approval isn’t the best outcome for that particular applicant. “Currently 7.1 million adults in the UK financially excluded from fair and affordable mainstream financial services and financial inclusion is a high priority for governments and regulators,” says Neil Allen, Head of Credit Risk Strategy at LexisNexis® Risk Solutions. “The potential certainly exists for Consumer Duty to help tackle this pervasive problem by encouraging firms to go the extra mile to ensure that, wherever possible, credit is extended to those who most need it – whether that’s banking services, lending or motor finance.”

In preparation for the new guidance, firms might consider enhancing their credit assessment decisioning using alternative data sets that go beyond traditional reference information, allowing them to build a more holistic picture of an applicant and get a better sense of who they are and their propensity to pay. “Alternative data enables lenders to consider those who lack a traditional credit footprint, such as people who are new to the UK, younger people and those who have not previously had control of their own finances, ensuring they’re treated as fairly as any other applicant, regardless of their credit history,” Neil continues. “Our analysis suggests more than 77% could be more effectively risk scored using alternative data sets. For those firms seeking to apply consumer duty principles in the credit decisioning process, alternative data can effectively supplement the gaps observed from traditional credit reference data sources.”

“Risk is dynamic, so treating customers as fairly as possible and ensuing good outcomes at every touchpoint in the journey requires businesses to have a firm handle on customers’ evolving needs throughout their lifecycle,” says Chris Foye, Senior Director of Market Planning at LexisNexis® Risk Solutions. “Getting this right for the new Consumer Duty guidance requires customer data and processes to be brought together into a single, joined-up end-to-end management journey that can monitor changing customer needs and enable a tailored experience. Any such approach also needs to align with evolving regulatory requirements and the organisation’s ambitions to scale.”

Risk orchestration platforms are well positioned to support the new Consumer Duty rules for banks, financial services, lenders and other providers, by delivering an end-to-end screening and monitoring process that automates complex decision making, drawing from as many or few data sources as required. Platforms allow users to create unified rules and scoring processes that extend from customer onboarding throughout the customer journey, creating a fully auditable trail that records every decision and the reasoning behind it. Chris continues, “customer behaviours can be automatically tracked over time to quickly detect and flag anomalies – allowing firms to intervene with support if necessary. Orchestration software can also be scaled in line with the organisation’s growth strategy, without the need for specialist or technical support. Its ‘no code strategy’ allows financial crime experts to make required changes directly, without delays, reducing or eliminating the need to involve development resources to implement changes, and supporting agility across the organisation.”