Reset Or Rinse And Repeat? - The FCA's New Consumer Duty

Paul Fothergill

Regulatory Engagement Manager

PMS

The Financial Conduct Authority (FCA) had been fl oating around the idea of a Duty of Care for some time. In 2021 the FCA took these plans further with consultation papers fl eshing out their thoughts. The new title for this work is The Consumer Duty and the second paper introduced a new principle, namely: A fi rm must act to deliver good outcomes for retail clients.

You can tell a lot about the importance the FCA is placing on this piece of work by the language they use to describe it. The word “reset” and phrase “shift in culture and behaviour” indicate that the regulator considers this work to be a key milestone in the regulation of fi nancial services. Much about the new principle and the content of the consultation paper feels familiar to fans of the FCA’s previous work. So is this really a reset, or merely just a rinse and repeat of old regulations?

The Consumer Duty is explained by the FCA as designed to set clearer and higher standards for the culture and conduct of fi rms, with the end goal being better outcomes for customers. This is certainly not the fi rst time the FCA has introduced new regulations to try and improve the way that fi rms interact with customers. The eff ectiveness of the existing principles for business is one thing that the Consumer Duty is seeking to address.. However, the FCA has stated that the customer’s interest principle (Principle 6) and communications with clients (Principle 7) will shortly be pushed behind the scenes, with the new duty set to replace them to help provide the higher standard that the FCA is keen on achieving through this work.

The Consumer Duty in the FCA’s mind seems to be the next step on from the treating customers fairly (TCF) rules, looking to hold fi rms more accountable for the actual outcomes that customers achieve after interacting with fi nancial services products and services. That’s not to say that fi rms are responsible for ensuring that a customer never misses a mortgage payment, or that the stock market only ever rises. But the rules do want fi rms to do all they can to ensure that their customers are in the best position possible to achieve

DISCOVER good outcomes, through products and services that take account of their needs and circumstances and products off ering fair value. The new rules set out that fi rms should put customers at the heart of everything they do, from product and service concept right the way through to product and service use.

The work does feel like a culmination of multiple previous pieces of work, bringing together the regulator’s vulnerable customers, general insurance (GI) pricing practices and TCF work into one condensed principle covering all fi nancial services activity. We’ve been promised more examples and information from the FCA to explain what it is that they’re looking for. Hopefully this will give some good examples for all diff erent sectors including intermediaries, to help fi rms with implementation. As with much of the FCA’s work the devil is tucked away in the details of the requirements. Many advisers will already be putting customers at the heart of their business and doing all they can to meet the terms of the new principle, even before being told what it was by the FCA. The tricky part comes not just with making sure that you can meet all the requirements of the new rules, but with being able to provide evidence that this is the case. This is likely to require additional forms of information gathering as well as reviews of existing procedures and processes and following up with customers to understand the role that fi rms played in the outcomes they achieved.

Even though the new Consumer Duty has a familiar feel to it, don’t be deceived into thinking it’s old hat. The FCA is throwing their weight behind the new rules, and we’ll be hearing a lot about them over the next few years and beyond. The fi nal rules are currently set to be published in the summer of 2022, with plenty more information to follow about what needs to be done to meet their requirements. Although the requirements are unlikely to be ground-breaking to those who have been in fi nancial services for a while, they are going to need thought and action to be implemented correctly.