The UK’s Financial Conduct Authority (FCA) has shared plans for a new Consumer Duty, which will aim to provide a greater level of consumer protection for retail financial markets for companies to follow.
UK companies are currently required to adhere to FCA guidelines and various requirements to treat clients fairly and many local businesses have reportedly been delivering the appropriate outcomes for consumers, such as quality products and services at reasonable prices, complemented by high standards of customer service and effective communications.
The FCA now reports that it has seen incidents where consumers may be harmed, such as companies offering information that could be misleading or challenging for clients to understand, thus limiting their ability to properly or accurately evaluate the product/service. This could offer insights into why 1 in 4 or 25% of respondents to the FCA’s 2020 Financial Lives Survey stated that they’re not too confident in the financial services sector and just 35% of survey respondents said that they think companies are honest and transparent in how they do business.
As part of the FCA’s work to address activities or behavior that may result in poor outcomes for consumers, the financial regulator is proposing to expand the current guidelines in order to ensure companies offer a greater level of consumer protection which should enable clients to get good or positive outcomes.
The new Duty will aim to support a shift in culture and behavior for companies, which means that clients always receive products that are appropriate for their needs, that represent fair value and are communicated in a clear and understandable format. This should help, instead of hinder, consumers’ ability to make informed decisions and be confident that they’re getting quality customer service.
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, stated:
“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 companies will be required to adhere to or be prepared to deal with regulatory measures, reportedly includes enforcement investigations should they fail to do so. It will have the follow elements:
The Consumer Principle, which will aim to reflect the standards of behavior the FCA will be expecting from companies. The wording that’s 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 that may require several key or desired behaviors from companies, which include taking reasonable and necessary steps to avoid or prevent foreseeable harm to clients, taking reasonable steps to enable clients to pursue their financial goals objectives and to always act in good faith.
It will be accompanied by appropriate rules and guidance that require more detailed expectations for company conduct in relation to the following outcomes: communications, products and services, customer service and price and value.
At present, the FCA consultation is open for comment until July 31, 2021. The FCA says that it is expecting to consult again on the suggested rule changes by the end of the year. The regulator will make any new rule changes by July 2022.
Additionally, the FCA is consulting on the possible benefits of attaching a private right of action to the new Duty, and what any “unintended” consequences of this could be.