How to design FCA regulated products with examples
Are you looking to start a fintech startup? You need to know about the FCA and TCF
A bit of context
This is a co-written article with George McNaughton, Head of Compliance at Neyber. The structure is based on the workshop we hosted as part of Mobile UX Design Festival at Fox Williams on the 23rd Feb 2018.
What are the buzz words!
What is the FCA?
‘The Financial Conduct Authority (FCA) regulates the financial services industry in the UK. Its role includes protecting consumers, keeping the industry stable, and promoting healthy competition between financial service providers’ www.gov.uk
In other words, they aim to ensure markets work well so that customers get a fair deal by:
- enhancing market integrity: identifying and managing conflicts of interest
- protecting consumers: they make sure firms put their customers protection above the firms’ own profitability
- promoting competition in the interests of consumers
Whilst they are primarily focused on protecting consumers they recognize firms must be allowed to trade for profit. you can read more about them at The FCA website.
FCA requirements — TCF (Treating Customers Fairly)
Treating Customers Fairly has been implemented by the FCA to ensure the fair treatment of customers. There are six principles (outcomes) under TCF and four of them are explicit product development implications.
Outcome 2
This principle is all about targeting the right audience and making sure people have products that meet their expectation and answer their needs. This principle is the most relevant to product development cycle.
‘Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.’ www.fca.org.uk
What can we do about it?
Before designing a financial product, you need to understand first your customers, their needs, their pain points, their behaviour and attitude. This helps you clarify and define the problems you need to solve.
‘If I had an hour to solve a problem I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.’ Albert Einstein
By the way, there is no proof that Einstein actually said those words. I like this quote and I think it summarizes the concepts of problem-solving and design thinking.
Double Diamond
There are different design thinking methods that you can use to solve problems. I personally use the double diamond, I use the principles of it and adjust depending on the circumstances, budget, resources, client...
Assumptions
Prior to research, gather stakeholders from different departments in a room, give them post-it notes and sharpies. Each person needs to write down what they think the problem is.
By the end of the session, you have a list of assumptions that you need to prove being right or wrong. This will help in writing the questions for your survey and interviews.
Discovery phase
In this phase, you need to answer questions like:
Who are your customers? Talk to people, find out about their challenges and their behaviour.
What’s going on in the market? Do a competitor analysis, see how other people handle similar challenges. Discuss the pros and cons.
Doing some research will also help you align your thoughts with the rest of the team and remove the incorrect assumptions you have listed prior to researching.
Definition phase
Now that you know who you are dealing with, you can define the approach you want to take for your product.
You identify patterns from your research and you start getting some visibility on the direction you need to take.
Design phase — have fun!
Take the most out of this phase, be creative, take it as an opportunity to collaborate with other members of the team, explore and have fun.
I usually run design studios for this. I invite stakeholders from different departments, brief them on the findings from the discovery phase and invite them to sketch out what they think the solution is.
You need to be prepared and clear on what you are trying to solve. Make sure you align visions by briefing people on the findings from your discovery phase before you start sketching. At the end of this session, you should have agreed on one or two concepts that you would like to test. I’ll write about this type of workshops in another article.
Test and iterate until you get it right.
Outcome 3
Communicate accurate information and provide a precise product description. Be specific, detailed and transparent.
‘ Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.’www.fca.org.uk
Neyber as an example has 3 fixed rates. They advertise them upfront on their website with a detailed description. They also show a representative example that uses the middle rates.
Outcome 5
Ensure that your product is marketed to the right target user and delivered through the right channel.
‘Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect.’www.fca.org.uk
For instance, customer satisfaction is important to Neyber. They value the satisfaction of their customers. One of the things they do to measure customer satisfaction is tracking their Trustpilot reviews to ensure their customers are treated fairly and respectfully.
How will you ensure the product features, risks and benefits are communicated?
Zopa as an example shows their rates upfront and states that the money is not FSCS protected and provides a link to their risk statement. They tell you upfront that a 1% applies when selling loans and provide a link for more details about what this means.
Outcome 6
No one wants to see their customers leaving. However, consumers need to be able to close their accounts if they wish to do so. You as a business, you have to give them the option to do so. Same applies when your customers want to stop getting your marketing materials.
‘Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.’www.fca.org.uk
Some of the question you might want to consider when you put together your product page:
- is there a penalty fee to close my account or to repay early?
- how easy is to switch my account?
- how easy is for me to complain?
Early repayments or early termination costs and any additional fees should be communicated up front.
That was the summary of the FCA requirements when it comes to building digital products. Now, let’s talk about governance!
FCA requirements — Governance
If you are offering a regulated product or service you must ensure your firm has the relevant FCA authorizations. Ask your compliance team!
Documentation (DPIA)
Ensure all decisions are documented (DPIA). Note that the FCA can request to see evidence of your product research to support your target market and risk considerations.
If you decide not to document a DPIA this decision should be documented.
‘Where we find that firms are not following our rules, we intervene. This may mean imposing penalties, stopping them trading or securing redress for consumers.’ www.fca.org.uk
To wrap up
The FCA requirements for product development is just common sense. In the end, the information on their website is so vague and grey that it could be interpreted differently from one organization to another. Some people take advantage of that and explore new ‘ways of doing’ until they get told off.
Before you go!
Did you like this article? Clap and share. I’m always keen to hear other people experiences. Get in touch if you have anything to share, to add or any questions.
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