FCA proposes new Consumer Duty to enhance protection in retail financial sector
The UK Financial Conduct Authority (FCA) has today outlined plans for a new Consumer Duty, which will set a higher level of consumer protection in retail financial markets.
The regulator 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.
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 is set to result in 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.
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 supported 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 on the proposal is open for comment until July 31, 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.