The Financial Conduct Authority is consulting on a new Consumer Duty towards prospective as well as current customers, which it said will help to prevent harm, saying it is “concerned that currently financial services do not always work well for consumers”. It has also published draft guidance to help firms prepare. 

 

The new Consumer Duty aims to “fundamentally shift the mindset of firms”, the FCA said. It requires them to act to deliver good outcomes, act in good faith and avoid foreseeable harm. Firms should also “enable and support retail customers to pursue their financial objectives”. The Consumer Duty has four ‘outcomes rules’; these are products and services, price and value, consumer understanding, and consumer support. 

 

“Making good financial decisions is vital to financial wellbeing and trust, but too often consumers are not given the information they need to make good decisions and are sold products or services that do not offer the benefits they might expect. We want to change that,” said Sheldon Mills, executive director of consumers and competition. 

 

“The new duty will drive a change in culture at firms. We expect firms to step up and put consumers at the heart of what they do and we’ll be holding senior managers accountable if they do not. The duty will also help create an environment for healthy competition between firms, encouraging them to be innovative in developing products and services that meet consumer's needs.” 

 

The FCA said it has seen harmful practices in the industry, such as information being presented in a way that exploits consumers’ behavioural biases, selling products or services that are not fit for purpose, or providing poor customer support. 

 

The new consultation takes on board feedback from industry and consumer groups made after the FCA published initial proposals in May.  

 

   

The FCA sais it “will use assertive supervision” and its new data led approach to intervene quickly when it identifies practices which do not deliver for consumers, pointing out that “parliament has also called strongly for a change to the standard of protection for consumers”. 

 

The consultation closes on 15 February 2022. The FCA said it expects to confirm final rules by the end of July 2022, with an implementation period until April 2023. Alongside today's consultation, the FCA has published draft guidance to help firms prepare before the introduction of the new duty.  

 

 

Steven Cameron, pensions director at provider Aegon, said the length of the latest paper shows how complex and all-encompassing the new duty is. "Helpfully, the paper recognises that in some sectors, embracing existing requirements for example around product governance, should meet certain aspects of the new duty, but the FCA is also quick to stress that firms must consider all current approaches against all new expectations,” he noted. 

 

However, for Cameron, the deadline for introduction of the rules and compliance is ambitious. “Even if firms do, as the FCA believes, have sufficient detail of proposals to begin implementation now, this timescale looks particularly tight bearing in mind the scope and sheer volume of other regulatory and legislative change,” he said. 

 

Nobody could argue with the intent of these proposals, said Tom Selby, head of retirement policy at investment platform AJ Bell. 

 

“Most ‘good’ firms should already be operating in this way, delivering products that customers value and constantly driving to enhance customer service,” he said, adding: “The inconvenient truth is that the majority of ‘bad’ actors in financial services either flout existing rules entirely or take a slapdash approach to treating customers fairly.” 

 

This means there needs to be “a credible enforcement threat” against firms who consistently fail savers and investors.  

 

Selby also warned that consumers must understand they retain ultimate responsibility for the financial decisions they make, concerned that claims management companies could chase “spurious cases” against firms as not all harm can be prevented. 

 

“The Financial Ombudsman Service will have a central role to play here in ensuring the intent of the new Consumer Duty is mirrored in the way it is applied in reality,” he said.