FCA calls for stronger protection of consumers in financial markets

The Financial Conduct Authority (FCA) has outlined plans for a new Consumer Duty, which will set a higher level of consumer protection in retail financial markets for firms to adhere to. Firms are already bound by FCA rules and principles to treat customers fairly and many firms are delivering the right outcomes for consumers, including good products and services at fair prices, supported by high standards of customer service and clear communications.

The FCA has seen evidence of practices that cause consumer harm, including firms providing information that is misleadingly presented or difficult for consumers to understand, hindering their ability to properly assess the product/service. This may provide some insight into why 1 in 4 respondents to the FCA’s 2020 Financial Lives Survey said they lack confidence in the financial services industry and only 35% of respondents agreed that firms are honest and transparent in their dealings with them.

As part of the FCA’s ongoing work to monitor and address behaviour that could lead to poor outcomes for consumers, the FCA is proposing to expand its existing rules and principles to ensure firms provide a higher level of consumer protection consistently which will enable consumers to get good outcomes.

The new 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 understood. This will help, rather than hinder, consumers to make good choices and be confident that they will receive 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 Consumer Duty, which firms will have to follow or face regulatory action, including enforcement investigations if they fail to do so, will have 3 key elements:

1. 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’.
2. Cross-cutting rules which 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 to act in good faith.
3. 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 consultation is open for comment until 31st July 2021. 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 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.

Joanna Elson CBE, Chief Executive of the Money Advice Trust said “Fair outcomes for consumers should be at the heart of everything financial services firms do. The FCA’s vulnerability guidance, published earlier this year, set out a clear call for firms to continue to improve their treatment of their customers, particularly those in vulnerable circumstances.”

 “We welcome today’s consultation on a package of new measures to deliver an overarching new consumer duty which takes this work further, and is a vital opportunity to ensure that firms are doing all that they can to prevent financial harm occurring and ensure firms are focussed on good customer outcomes.”

“Despite welcome progress in recent years, there remain issues within the financial services market that leave consumers at risk of harm and exclusion. It is important that the new duty leads to practical improvements and delivers fair outcomes for all consumers, by ensuring that everyone can access products and services that are safe and meet their needs.”

Peter Tutton, Head of Policy, Research and Public Affairs at StepChange Debt Charity, said “Poor practice among creditors, particularly among firms providing high cost products, continues to cause harm to consumers and highlights the gap between the fair market we want to see and a market where consumers are exposed to poor practice when they are most vulnerable.”

“We strongly welcome the FCA’s commitment to develop and take forward a strong consumer duty and will look at the detail of its proposals carefully. An effective duty has the potential to proactively drive real change and better protect vulnerable consumers.

“As the government takes forward its wider review of the financial services regulatory framework, there is a need to embed a strong duty of care in legislation requiring firms to operate with a ‘fair by design’ principle and not take advantage of consumer vulnerabilities, biases or constrained choice. “

Caroline Siarkiewicz, Chief Executive Officer of the Money and Pensions Service said “Financial services providers have a critical role to play in ensuring that their customers can truly make the most of their money and pensions, by developing accessible products and services that support good financial decisions and deliver strong financial outcomes. We therefore welcome this consultation on a potential new consumer duty to create greater protections for consumers and ensure that firms deliver the right outcomes for their customers.”