How will the FCA’s new financial inclusion remit reshape Consumer Duty?

In a recent letter, the Treasury wrote to the FCA to recommend that financial inclusion forms part of its remit.

The exact words said: “..should have regard to reinforcing financial inclusion...to enable individuals to access the financial services and products they need to fully participate in the economy.”

The letter comes as an increasing spotlight is placed on financial inclusion in the UK, with the new Labour government setting out plans to create a national inclusion strategy. The aim is to improve financial resilience and minimise exclusion.

Professor Martin Coppack from Fair By Design has been campaigning for this change for several  years – and hats off to him for his persistence. 

The question is though, how will this change to the FCA’s remit affect Consumer Duty? The regulation requires firms to prevent harm – such as minimising bad outcomes to consumers. Effectively, this instruction to the FCA asks for Consumer Duty to be extended further than just preventing harms – and to include the minimisation of financial exclusion.

Much of focus so far for financial inclusion has been on the banks, ensuring those who have small funds can still access a bank account. But how will this affect the rest of financial services? A large proportion of financial firms service those consumers with ample funds and the cost of advice  means it is typically commercially unviable to offer advice to those with minimal funds. There is hence a massive commercial conflict if firms are required to provide services to those with less funds, that are commercially loss making.

Alongside those who may be financially excluded, the change raises questions for those customers that can be excluded from opportunities, benefits or accessing services due to their personal characteristics or a disability.

The Equality Act requires that all firms do not discriminate against customers because of their protected characteristics, such as their age, race, religious beliefs, sexual orientation or disability. Historically, few firms have been challenged under the Equality Act and arguably it has not been enforced that well.

However, Consumer Duty brings the Equality Act within its umbrella, requiring firms to monitor and report on whether they are meeting this criterion. This is likely to raise the issues of discrimination – at least internally, if not externally. While most firms will be fine in not discriminating against gender, age or religion, there will be considerably more of a challenge for disability.

The Equality Act defines disability as anyone with a physical or mental impairment who has a ‘substantial’ and ‘long-term’ negative effect on their ability to do normal daily activities. With ‘long term’ meaning 12 months or more, this includes most cancers, cognitive impairments and diabetes for example.

Indeed, over half of people over 65 have at least one long-term illness and this increases to nearly two out of three for those over 85.  This has repercussions for those firms pursuing a digital only solution and indeed those with an older clientele.

Firms are able to select their own target market and, in theory, this could be a digital-only channel – but how does this comply with the Equality Act? In practice, it is difficult to see how any firm can operate as digital only (without any other means of communication) without contravening the Equality Act, as it discriminates against those who cannot interact digitally.

Consumer Duty should reduce exclusion for the vulnerable and anyone with disability, as there is a large overlap with those who have reduced funds, this should go some way to reduce financial exclusion. We do not expect the financial inclusion issue being changed or solved any time soon. Indeed there will need to be a consultation and recommendations first, and it is likely the FCA will be after data from firms to see the impact on exclusion from existing Consumer Duty regulations.

The FCA has been repeatedly banging the drum for firms to hold data and manage customer vulnerability – and this is due to increase with the publication of its vulnerability review in a few months’ time. While it is too early to anticipate how the financial inclusion requirements will be implemented, those firms which hold robust data and comply with vulnerability and Consumer Duty requirements should at least be in a strong position to understand the issues and implications.