Advisers are required to tell the the Financial Conduct Authority (FCA) if they witness other firms in the distribution chain who are not meeting its incoming Consumer Duty, the regulator has announced.
The firm identifying the consumer harm elsewhere in the chain must also raise the concerns with other relevant parties, it added.
However, the FCA highlighted that under the Consumer Duty rules, unless there are regulatory requirements or it is required by contract, firms are liable only for their own activities and do not need to oversee the actions of other firms in the distribution chain.
Introducing the need to report breaches of the rules, the FCA said: “As the duty applies to firms through the distribution chain, there may be situations in which firms disagree as to the best way in which to provide good customer outcomes.
“A firm identifying consumer harm elsewhere in the chain must raise the concerns with other relevant parties. It must also notify the FCA where it becomes aware that another firm in the distribution chain may not be complying with the duty.
“Depending on the issues involved, this might be the only action a firm needs to take.”
It has proposed different responsibilities for firms classed as the manufacturer or distributor of a product or service.
While it considered providing more precise definitions of the ‘manufacturer’ and ‘distributor’ terms, in general, the regulator has not done so.
Where relevant, the FCA said it will make use of existing terms in the definitions. Elsewhere, however, it will rely on a plain language meaning and has added some guidance to help explain its expectations.
It added the concepts were deliberately broad to capture all aspects of the manufacturing and distribution of products and services.
Only liable for own conduct
In December the FCA proposed that while all firms in the distribution chain have responsibilities under the duty, they would only have liability for their own activities and would not be responsible for outcomes arising from the actions, or omissions, of other firms in the chain.
The FCA confirmed that while it would be taking the proposal forward, it would add further clarity.
The regulator said it considered it was fair for firms generally to be responsible only for their own actions and omissions.
It said that adding a requirement to make them additionally responsible for other firms in the distribution chain would not always be possible and, even where it is, would be expensive and disruptive to the market, requiring firms to attempt to oversee and control each other’s work.
The regulator said it did not believe this would result in good customer outcomes overall and may lead to higher charges for customers and reductions in access, choice and innovation. Under the rules, customers will still have recourse in relation to the firm or firms whose actions or omissions led to harm.
However, the FCA emphasised there were exceptions to this general approach, for example where a firm acts as a principal firm.
