The Financial Conduct Authority (FCA) has confirmed its plans to bring in the Consumer Duty, which will look to fundamentally improve how firms serve consumers.
It will set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first.
The duty is comprised of several components including a consumer principle, which reflects the overall standard of behaviour the FCA wants from firms and which is defined further by the other elements of the Consumer Duty.
It also includes ‘cross-cutting rules’ which will develop the regulator’s expectations for behaviour through three overarching requirements for firms – take all reasonable steps to avoid foreseeable harm to customers; take all reasonable steps to enable customers to pursue their financial objectives; and act in good faith.
There are also ‘four outcomes’ which are a suite of rules and guidance setting expectations for conduct in four areas such as:
- the governance of products and services;
- price and value;
- consumer understanding; and
- consumer support.
Requirements
The Consumer Duty will require firms to:
- End rip-off charges and fees;
- Make it as easy to switch or cancel products as it was to take them out in the first place;
- Provide helpful and accessible customer support, not making people wait so long for an answer that they give up;
- Provide timely and clear information that people can understand about products and services so consumers can make good financial decisions, rather than burying key information in lengthy terms and conditions that few have the time to read;
- Provide products and services that are right for their customers; and
- Focus on the diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction.
The FCA is giving firms until 31 July 2023 to implement the new rules for all new and existing products and services that are currently on sale. However, ‘closed-book’ providers have been given until 31 July 2024 to bring older products that are no longer for sale up to higher regulatory standards.
But, the UK regulator is giving firms until the end of October 2022 to agree implementation plans of how they will meet the guidelines and rules deadline.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “The current economic climate means it’s more important than ever that consumers are able to make good financial decisions. The financial services industry needs to give people the support and information they need and put their customers first.
“The Consumer Duty will lead to a major shift in financial services and will promote competition and growth based on high standards. As the Duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.”
Vince Smith-Hughes, director of specialist business support at M&G Wealth, added: “It’s good to see the FCA taking on board feedback from the consultation and giving firms additional time to embed the rules and guidance. However, this shouldn’t be a reason for firms to delay their preparation.
“Let’s not forget that requirements, such as the collection and collation of suitable management information for the annual report, will in some cases need new processes to be thought through and created well ahead of the official implementation.”
‘Sort wheat from the chaff’
David Tiller, commercial and propositions director at Quilter, said: “The new Consumer Duty is a watershed moment for financial services in the UK. It represents a cultural shift in regulation from treating customers fairly to positioning customers to achieve good outcomes – and proving it.
“This is an entirely reasonable ambition and, as such, I believe that we should get behind Consumer Duty and use it as the springboard to build deeper relationships with the public we serve.
“The clear focus on customer outcomes and the measurement of value will expose poor practices that fail to deliver for the consumer while providing a unique opportunity to help customers see the value of the great things most financial services businesses do. Essentially, this is regulation that will sort the wheat from the chaff.
“As expected, the final rules for the new Consumer Duty have not changed significantly since the consultation paper. The one exception being a delay to timescales, which is entirely sensible to ensure the new duty is implemented effectively.
“The regulation is ambitious, far-reaching and the terms are broad, meaning it will be of consequence to all retail financial services. Firms will have to re-evaluate how they collect and collate data; implement a wave of new procedures and ensure culture is laser-focused on good customer outcomes.”
Advice guidance boundary
Tom Selby, head of retirement policy at AJ Bell, added: “The Consumer Duty is effectively a gauntlet laid at the feet of all UK financial services firms by the FCA.
“The regulator has been absolutely crystal clear that the new rules are intended as a step up in standards, with firms required to aim for ‘good outcomes’ for customers when designing products, setting prices, providing support and communicating. While firms offering products and services that are still for sale will be given 12 months to implement the requirements, so-called ‘closed-book’ firms no longer selling new products have been given until 2024 to comply.
“The FCA will likely receive some flak for this decision, especially given much of the worst detriment in terms of things like high charges and poor service often sit squarely with firms no longer actively trying to win new business. The regulator might argue closed-book providers need more time to update antiquated systems, but that will come as little comfort to customers stuck in poor value products and receiving unsatisfactory service.
“More broadly, the Consumer Duty brings to a head the arguments around the boundary between guidance and advice. If the full benefits of the duty are to be realised, the FCA – or possibly the government via legislative reform – will need to provide clarity on this boundary.
“Without such clarity, there is a risk customers will receive sub-optimal levels of support when making often complex financial decisions.”
