Consumers as Innovators and the UK Financial Conduct Authority’s Consumer Duty

We address the scope, purpose, and initial implementation from July 2023 of the UK Financial Conduct Authority’s (FCA) Consumer Duty. As an instance of financial regulation innovation, the Consumer Duty is having a major impact in the financial services sector and has impacted on the organisation of markets for financial services and in the interactions of consumers and providers.

The Duty brings to prominence the ways in which the production, marketing and use of financial services products and services are strongly interrelated. It highlights: (1) Consumers’ financial literacy; (2) Providers’ confidence that their products and services and communications about these are being understood; and (3) How providers are anticipating and coping with vulnerability among their customers.

Together, these recognise consumers as being active, engaged, adaptive and innovative. We position the paper in terms of active consumption and market and marketing channels so as to focus on active consumers, and consumer vulnerability. To illustrate how the Consumer Duty is shaping the development, marketing and uses of financial services, we explore a sample of cases reported by the Financial Ombudsman Service, in which the issues referenced are akin to the elements addressed in the Consumer Duty.

We find that consumer understanding is a prominent factor, which also impacts on a number of other categories and subcategories. We also see, through the perspective of Consumer Duty, a somewhat pacified or pacifying view of consumers and in some instances, tensions emerging between consumer adaptations and the contractual terms for financial products and services. This adds to our conceptual framing of market channel and its implications for consumer vulnerability.