The regulator aims to ‘put consumers in a stronger position to make good decisions’ thanks to proposed rule extensions
The FCA has launched a consultation on proposed rule changes to enhance consumer protection for retail financial market customers, aiming to ensure consumers achieve good outcomes.
According to the regulator, its recommended Consumer Duty “will drive a shift in culture and behaviour for firms, meaning that consumers always get products and services that are fit for purpose, that represent fair value and are clearly communicated and understandable”.
It believes this will “will help, rather than hinder, consumers to make good choices and be confident that they will receive good customer service”.
Regulated financial services firms will be required to adhere to the new Consumer Duty or face regulatory action, including enforcement investigations.
The Duty is centred around three key elements:
- The Consumer Principle: This 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: This would require three 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 to act in good faith.
- Four outcomes: The Duty will be underpinned by a suite of rules and guidance that set more detailed expectations for firm conduct in relation to four specific outcomes – communications, products and services, customer service and price and value.
The FCA said it has initiated this action because it has “seen evidence of practices that cause consumer harm, including firms providing information which is misleadingly presented or difficult for consumers to understand, hindering their ability to properly assess the product/service”.
In the regulator’s 2020 Financial Lives Survey, published in February, for example, one in four respondents said they lack confidence in the financial services industry. Only 35% of respondents agreed that financial services firms were honest and transparent in their dealings with them.
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 consultation is open for comment until 31 July 2021. The FCA then expects to consult again on proposed rule changes by the end of 2021, with any new rules being made by the end of July 2022.
The FCA is also consulting on the potential benefits of attaching a private right of action to the new Duty and what any unintended consequences of this might be.