FCA to introduce consumer duty to drive “fundamental shift” in industry mindset

The Financial Conduct Authority (FCA) has stated it will introduce a consumer duty in order to drive a “fundamental shift” in the mindset of financial services firms.

The regulator explained that it was concerned that currently financial services did not always work well for consumers.

It argued that the new plans, outlined in a consultation paper published today (7 December), would ensure a higher and more consistent standard of consumer protection for users of financial services and help stop harm before it happens.

It notes that through its previous interventions, the watchdog has seen practices by some firms that cause harm, including firms presenting information in a way that exploits consumers’ behavioural biases, selling products or services that are not fit for purpose, or providing poor customer support.

Consultation
The FCA initially proposed to introduce a consumer duty in May this year, and according to the regulator, the consultation takes on board feedback and engagement with industry and consumer groups.

It further noted that the consultation set out more developed proposals for new rules to tackle the causes of harmful practices, arguing that the rules would “raise industry standards by putting the emphasis on firms to get products and services right in the first place”.

The FCA detailed that the new rules would require firms to focus on supporting and empowering their customers to make good financial decisions and avoiding foreseeable harm at every stage of the customer relationship.

This means that firms will have to provide consumers with information they can understand, offer products and services that are fit for purpose and provide helpful customer service.

The FCA explained that it would use assertive supervision and its new data led approach to intervene quickly when it identified practices which did not deliver for consumers.

It has further published draft guidance to help firms prepare before the introduction of the new duty. 

The consultation closes on 15 February 2022 and the FCA stated that it expected to confirm any final rules by the end of July 2022.

Decisions
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Making good financial decisions is vital to financial well-being and trust, but too often consumers are not given the information they need to make good decisions and are sold products or services that do not offer the benefits they might expect.

“We want to change that. We’ve been working to set a higher standard for firms, to put more of the onus on them to act in their customers’ interests and get their products and services right.”

He continued: “The new duty will drive a change in culture at firms. We expect firms to step up and put consumers at the heart of what they do and we’ll be holding senior managers accountable if they do not.

“The duty will also help create an environment for healthy competition between firms, encouraging them to be innovative in developing products and services that meet consumer’s needs.”

Clear
In response to the consultation paper, Sian Fisher, chief executive officer of the Chartered Insurance Institute, said: “The FCA is being crystal clear: they want the profession to innovate to address the unmet needs of consumers. The regulator’s findings support those of our public trust index - failure to address this erodes consumer trust in the profession.

“We fully support cultural change that enables consumers to make informed and timely decisions, receive satisfactory support from providers and take action to address their needs.”

Fisher continued: “Our Shaping the future together consultation shows there is an appetite among professionals to further develop the skills and knowledge required to consider the needs of their customers – including those in vulnerable circumstances – and how they behave, at every stage of the product/service lifecycle.

“We are committed to supporting the insurance and personal finance profession with the growing focus on and awareness of what their customers experience and addressing diverse needs.”

Intention
In addition, Heather Alleyne, UK financial services regulation partner at EY, commented: “Today’s measures confirm, without any doubt, the FCA’s intention to pursue a new consumer principle. This is set to change the face of the consumer financial services market and puts retail customers and SMEs more firmly in the driving seat of their finances than ever before.

“The limited range of rules and guidance published today put a significant onus on firms to think now about how they will ensure they have placed consumers at the heart of their individual business models.

“The task before the industry is challenging, but by no means insurmountable, and while the timetable is short for a change of this scale, this is an essential new focus for the industry, which will better protect everyone who uses financial products and services.”

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