The FCA has today set out plans for a new Consumer Duty, which 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 and many firms are delivering the right outcomes for consumers, including good products and services at fair prices, supported by high standards of customer service and clear communications.
The FCA 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. This may provide some insight into why 1 in 4 respondents to the FCA’s 2020 Financial Lives Survey said they lack confidence in the financial services industry and only 35% of respondents agreed that firms are honest and transparent in their dealings with them.
As part of the FCA's ongoing work to monitor and address behaviour that could lead to poor outcomes for consumers, the FCA is proposing to expand its existing rules and principles to ensure firms provide a higher level of consumer protection consistently which will enable consumers to get good outcomes.
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. This will help, rather than hinder, consumers to make good choices and be confident that they will receive good customer service.
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, 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 is open for comment until 31 July 2021. 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.
The Consultation Paper is available here and comments are required by 31st July 2021.
The FCA make clear that the Consultation Paper should be considered by all regulated firms, including industry groups and trade bodies. Moreover, some of the practices identified by the FCA as being those that they would wish to see remedied and which they refer to as behavioural bias and sludge practices, are features which an objective observer could say relate to the legal arrangements around credit hire transactions.
Commenting to the BBC, Pippa Tasker, a financial services partner with law firm CMS, said: "For many firms, it will require a significant shift in culture and behaviour, necessitating a review of all policies and procedures."