The Financial Conduct Authority (FCA) has recently announced on 14 May 2021 plans for a new Consumer Duty which will set a higher level of consumer protection in retain financial markets for firms to adhere to.
In accordance with the FCA rules and principles, firms are currently required to treat customers fairly and many firms are providing the right outcomes for consumers i.e. goods and services at fair prices, high standards of customer service etc. However, in their press release, the FCA have stated they have seen evidence of practices that cause consumer harm and how consumers lack confidence in the financial services industry, with only 35% respondents agreeing, in the FCA's 2020 survey, that firms are honest and transparent in their dealings with them.
The FCA is therefore proposing to expand its existing regulations to ensure firms provide a higher level of consumer protection regularly to enable consumers to get good outcomes such as, goods and services that are fit for purpose, that represent fair value and are clearly communicated and understandable.
The new Consumer Duty which the financial services industry would be expected to follow or face regulatory action. This Duty would 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 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 acting 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 FCA hopes that these new principles would tackle a shift in the culture and behaviour for the financial services industry and assist consumers to make good choices as well as be confident that they will obtain 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 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 content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.