Firms given 12 months to prepare for FCA’s consumer protection rules
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Financial services firms have until 31 July 2023 to implement new rules that will improve how they serve retail consumers for all new and existing products and services.
The rules – known as consumer duty - will be extended to closed book products 12 months later to give firms more time to bring older products that are no longer on sale up to the new standards, according to the Financial Conduct Authority.
The watchdog said consumers should receive communications they can understand and products and services that meet their needs and offer fair value.
The regulator consulted on the rules until February this year as it was “concerned that currently financial services do not always work well for consumers”.
What will FCA’s consumer duty require companies to do?
The regulator said the new plans will fundamentally change the mindset of firms.
Sheldon Mills, FCA’s executive director of consumers and competition, said the rules will lead to a “major shift” in financial services: “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 duty will include requirements for firms to:
• end rip-off charges and fees
• make it as easy to switch or cancel products as it was to take them out in the first place
• provide helpful and accessible customer support, not making people wait so long for an answer that they give up
• provide timely and clear information that people can understand about products and services so consumers can make good financial decisions, rather than burying key information in lengthy terms and conditions that few have the time to read
• provide products and services that are right for their customers
• focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction
FCA’s timeline in question
The Association of British Insurers and the Personal Investment Management & Financial Advice Association agreed with the FCA’s decision to give companies 12 months to implement the consumer duty for new and existing policies, and another 12 months for closed books.
Aegon pensions director, Steven Cameron, said the July 2023 deadline remained tight.
“Carrying out such an all-encompassing review thoroughly will take time,” he said.
Cameron said with the extra year to implement changes for legacy books closed to new business was helpful, “particularly for firms with policies many decades old, with policy conditions written for a very different world”.
However, Tom Selby, head of retirement policy at investment platform AJ Bell, believes the regulator is likely to be criticised for giving firms selling closed-book products until 31 July 2024 to comply with the new rules.
“The FCA will likely receive some flak for this decision, especially given much of the worst detriment in terms of things like high charges and poor service often sit squarely with firms no longer actively trying to win new business,” he said.
“The regulator might argue closed-book providers need more time to update antiquated systems, but that will come as little comfort to customers stuck in poor value products and receiving unsatisfactory service.”
Financial sector backs FCA’s consumer duty
Industry overall expressed support for the new rules.
Hannah Gurga, ABI director general, said the new consumer duty will build on “the work and good practice already undertaken by insurers and long-term savings providers in this highly regulated area”.
PIMFA’s head of public affairs, Simon Harrington , said the consumer duty has the potential to be a “transformative piece of regulation” which could substantially improve how firms serve consumers.
Chris Hill, chief executive of investment firm Hargreaves Lansdown, welcomed the news but urged the FCA to revise its own rulebook to remove regulations which hinder innovation in the interests of consumers.
He said: “There is scope for us to personalise guidance to clients to a greater extent, to drive engagement and better outcomes.”
Selby said the consumer duty is “effectively a gauntlet laid at the feet of all UK financial services firms by the FCA”.
He added: “The regulator has been absolutely crystal clear that the new rules are intended as a step up in standards, with firms required to aim for ‘good outcomes’ for customers when designing products, setting prices, providing support and communicating.”
Are 12 months enough for companies to implement the rules?
The rules – known as consumer duty - will be extended to closed book products 12 months later to give firms more time to bring older products that are no longer on sale up to the new standards, according to the Financial Conduct Authority.
The watchdog said consumers should receive communications they can understand and products and services that meet their needs and offer fair value.
The regulator consulted on the rules until February this year as it was “concerned that currently financial services do not always work well for consumers”.
What will FCA’s consumer duty require companies to do?
The regulator said the new plans will fundamentally change the mindset of firms.
Sheldon Mills, FCA’s executive director of consumers and competition, said the rules will lead to a “major shift” in financial services: “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 duty will include requirements for firms to:
• end rip-off charges and fees
• make it as easy to switch or cancel products as it was to take them out in the first place
• provide helpful and accessible customer support, not making people wait so long for an answer that they give up
• provide timely and clear information that people can understand about products and services so consumers can make good financial decisions, rather than burying key information in lengthy terms and conditions that few have the time to read
• provide products and services that are right for their customers
• focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction
FCA’s timeline in question
The Association of British Insurers and the Personal Investment Management & Financial Advice Association agreed with the FCA’s decision to give companies 12 months to implement the consumer duty for new and existing policies, and another 12 months for closed books.
Aegon pensions director, Steven Cameron, said the July 2023 deadline remained tight.
“Carrying out such an all-encompassing review thoroughly will take time,” he said.
Cameron said with the extra year to implement changes for legacy books closed to new business was helpful, “particularly for firms with policies many decades old, with policy conditions written for a very different world”.
However, Tom Selby, head of retirement policy at investment platform AJ Bell, believes the regulator is likely to be criticised for giving firms selling closed-book products until 31 July 2024 to comply with the new rules.
“The FCA will likely receive some flak for this decision, especially given much of the worst detriment in terms of things like high charges and poor service often sit squarely with firms no longer actively trying to win new business,” he said.
“The regulator might argue closed-book providers need more time to update antiquated systems, but that will come as little comfort to customers stuck in poor value products and receiving unsatisfactory service.”
Financial sector backs FCA’s consumer duty
Industry overall expressed support for the new rules.
Hannah Gurga, ABI director general, said the new consumer duty will build on “the work and good practice already undertaken by insurers and long-term savings providers in this highly regulated area”.
PIMFA’s head of public affairs, Simon Harrington , said the consumer duty has the potential to be a “transformative piece of regulation” which could substantially improve how firms serve consumers.
Chris Hill, chief executive of investment firm Hargreaves Lansdown, welcomed the news but urged the FCA to revise its own rulebook to remove regulations which hinder innovation in the interests of consumers.
He said: “There is scope for us to personalise guidance to clients to a greater extent, to drive engagement and better outcomes.”
Selby said the consumer duty is “effectively a gauntlet laid at the feet of all UK financial services firms by the FCA”.
He added: “The regulator has been absolutely crystal clear that the new rules are intended as a step up in standards, with firms required to aim for ‘good outcomes’ for customers when designing products, setting prices, providing support and communicating.”
Are 12 months enough for companies to implement the rules?
