The Financial Conduct Authority has recently set out plans for a new consumer duty, which will create a higher level of consumer protection in the retail financial services market.
At the moment, firms are bound by FCA rules and principles to treat customers fairly, which includes providing products and services at a fair price and high standards of customer service.
Despite these rules, the FCA has seen evidence of practices that cause consumer harm, which include firms providing misleading information or difficult to understand information to customers on their products and services. The FCA’s 2020 Financial Lives Survey, published in February, revealed the following:
- 1 in 4 respondents lacked confidence in the financial services industry
- Only 35% of respondents agreed that firms were honest and transparent in their dealing with them
As a result, the FCA is proposing to expand its existing rules and principles to ensure firms provide a higher level of consumer protection consistently. The new Duty will drive a shift in culture and behaviour for firms, meaning that consumers always get products and services that are fit for purpose, that represent fair value and are clearly communicated and understandable.
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: ‘The package of measures we are proposing will enhance our existing rules and is designed to tackle the harms we see in financial services markets, and their causes, as well as put consumers in a stronger position to make good decisions.
‘We want firms to be putting themselves in the shoes of consumers and asking ‘would I be happy to be treated in the way I treat my customers?’. We want consumers to be able to advance their financial wellbeing and build positive futures for themselves and their families.’
The Consumer Duty will consist of 3 key elements that firms will have to follow or face regulatory action:
- 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.
Firms failing to comply may find themselves facing enforcement investigations.
The consultation is open for comment until July 31, 2021 and 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.
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