FCA to introduce Consumer Duty
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The Financial Conduct Authority is planning to create a new Consumer Duty, which it says will set a higher level of consumer protection in retail financial markets for firms to adhere to.
Firms are already bound by FCA rules and principles to treat customers fairly, but the FCA said it has "seen evidence of practices that cause consumer harm, including firms providing information which is misleadingly presented or difficult for consumers to understand, hindering their ability to properly assess the product/service".
It suggests that this is why a quarter of consumers currently lack confidence in the financial services industry as shown by its FCA’s 2020 Financial Lives Survey, and a mere 35% agreed that firms are honest and transparent in their dealings with them.
It suggests that this is why a quarter of consumers currently lack confidence in the financial services industry as shown by its FCA’s 2020 Financial Lives Survey, and a mere 35% agreed that firms are honest and transparent in their dealings with them.
The FCA hopes that the new Consumer Duty will drive a shift in culture and behaviour for firms, making products and services fit for purpose, fair value and clearly communicated and understandable.
Sheldon Mills, executive director of consumers and competition, said: "We want firms to be putting themselves in the shoes of consumers and ask, ‘Would I be happy to be treated in the way I treat my customers?’"
The Consumer Duty, which firms will have to follow or face regulatory action, including enforcement investigations if they fail to do so, will have 3 key elements:
Sheldon Mills, executive director of consumers and competition, said: "We want firms to be putting themselves in the shoes of consumers and ask, ‘Would I be happy to be treated in the way I treat my customers?’"
The Consumer Duty, which firms will have to follow or face regulatory action, including enforcement investigations if they fail to do so, will have 3 key elements:
- The Consumer Principle, which will reflect the overall standards of behaviour the FCA expects from firms. The wording being consulted on is: 'a firm must act in the best interests of retail clients' or 'a firm must act to deliver good outcomes for retail clients'.
- Cross-cutting rules which would require 3 key behaviours from firms, which include taking all reasonable steps to avoid foreseeable harm to customers, taking all reasonable steps to enable customers to pursue their financial objectives and to act in good faith.
- It will also be underpinned by a suite of rules and guidance that set more detailed expectations for firm conduct in relation to 4 specific outcomes – communications, products and services, customer service and price and value.
The consultation closes on 31 July. The FCA expects to consult again on proposed rule changes by the end of 2021 and make any new rules by the end of July 2022. The FCA is also consulting on the potential benefits of attaching a private right of action to the new Duty, and what any unintended consequences of this might be.
