Consumer Duty Complications: AI And Continuous Compliance

No one is suggesting that financial regulations are simple concepts to understand, but these expansive rules are usually put in place for good reason. Regulators design most measures following a crisis to avoid the disaster repeating itself.

However, there are examples of regulators thinking proactively, and with the introduction of Consumer Duty regulations brought in by the Financial Conduct Authority (FCA), this shift has prompted the sector to prioritize the consumer or face the consequences.

The FCA has also shown that they’re serious about enforcement. The regulator now has the power to impose significant financial penalties on firms that breach Consumer Duty, with the level of fines varying according to the severity of the breach.

On its first day, for instance, the FCA issued 146 alerts about crypto asset promotions and a 14-point action plan to ensure banks and building societies are passing on interest rate rises to savers appropriately. Those banks that cannot demonstrate fair value by the end of 2023 face “robust action.”

What is Consumer Duty?

At its heart, Consumer Duty will ensure that financial services will act transparently and be accountable when doing business with the public. After the distrust that followed consumers being mis-sold Payment Protection Insurance, these regulations aim to quell some of the hesitations prospective customers feel when parting with their money.

Instead of relying on the traditional tick-box approach to compliance, Consumer Duty will now use a proactive, customer-focused approach. As explained by the FCA in its public announcement, “the Consumer Duty will lead to a major shift in financial services and will promote competition and growth based on high standards.

As the Duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems”.

The Focus Of Consumer Duty Regulations

The Consumer Duty regulations focus on four main areas to make this a reality:

  1. Communications
  2. Products and Services
  3. Customer Service
  4. Price and Value

However, following these guidelines becomes much easier in the age of AI. Let’s look at each in more detail.


When advertising financial offerings, businesses must be mindful not to represent their product or service in any way that can be viewed as misleading or untruthful. Failure to do so can result in sanctions from the Advertising Standards Agency and, in extreme cases, will require compensating the customer. However, this can be prevented by utilizing AI.

By continuously monitoring all communications, AI can quickly spot non-compliant information or the potential for misunderstandings before being progressed to the design phase, saving time and money. In this approach, AI brings speed, accuracy, and objectivity to the communications analysis, allowing customers to make informed decisions without worrying about unfair pressures in messaging.

Product and Services Design

Although Consumer Duty will likely cause hesitation when designing the latest financial products and services, AI will also deliver insights that can put these worries at ease. Applying objective decision-making means that product recommendations are devoid of human biases. At the same time, AI algorithms can match consumers with the most suitable financial products based on their profile, needs, and financial aspirations, helping to boost satisfaction.

In broader terms, AI can also streamline the wider product and service risk management process. AI can identify potential risk areas by continually monitoring product performance and customer feedback, allowing for swift remediation. If a specific financial product is underperforming or causing customer grievances, AI can flag this, ensuring that the product is re-evaluated or modified accordingly.

Customer Service

AI can also help to improve customer service. One key area is how customer queries and grievances are addressed, with more advanced and effective AI-powered chatbots providing more accurate and effective responses to common queries, ensuring the 24/7 customer support this technology has often failed to deliver.

Moreover, AI’s improved risk management means customer service departments can anticipate potential issues. Predictive algorithms can foresee spikes in customer queries or potential areas of contention, allowing teams to be better prepared and resourced, ensuring consistent and high-quality service.

Price and Value

Finally, in the context of financial services, pricing can be a highly nuanced process, but AI has the potential to offer some significant advantages. Through real-time market analysis, for instance, AI ensures that product pricing remains competitive, providing genuine value to customers. If there’s a shift in the market landscape, AI can adjust product prices dynamically, ensuring they align with current market value.

AI’s objective decision-making can also play a role by ensuring that external pressures or internal biases do not influence pricing strategies. Instead, prices can be set based on empirical data, ensuring fairness and value.

AI – A Tool for Continuous Compliance?

In an ideal world, the future compliance manager will demonstrate a strong blend of tech-savvy capabilities and strategic foresight. While AI will be a tool in their arsenal, the true value will come from interpreting AI’s insights and aligning them with the company’s broader vision.

This transition means compliance managers must continuously upskill and understand the nuances of AI and its implications. They need to ensure that while leveraging technology, the human touch in decision-making isn’t lost.

As businesses increasingly rely on AI, maintaining trust becomes paramount, while teams need to be confident in the AI’s outputs internally. Consumers must trust that they are receiving a fair and unbiased service.

In the event of discrepancies being identified, swift action and transparent communication will be essential. Any erosion in trust can have lasting repercussions, underscoring the importance of maintaining integrity in processes. In this context, compliance managers shouldn’t be afraid of the potential impact of AI on their future roles. Compliance managers have reassurance that their skills and experience will be more critical than ever.

Written by Gary Lynam, Managing Director, EMEA at Protecht

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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