The Financial Conduct Authority (FCA) is planning to introduce fresh demands on advisers and intermediaries to ensure they are operating in the customer’s best interests at all times.
The rules will be in addition to the existing Treating Customers Fairly (TCF) approach and aim to “drive a shift in culture and behaviour” by firms putting themselves in the customers’ shoes, the FCA said.
They will apply to all intermediaries and providers operating in retail financial markets and include SME customers where the FCA has jurisdiction over the transaction.
“The FCA 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 or service,” the regulator said.
“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 understandable.
“This will help, rather than hinder, consumers to make good choices and be confident that they will receive good customer service.”
Higher standard of care
The FCA emphasised that the Consumer Duty is intended to set a higher standard of care and expectation beyond its current set of principles and rules.
And added that it was not a one-line duty but a package of measures that has been specifically designed to more effectively tackle the harms it sees in financial services markets, and their causes.
“We see many good practices by firms in retail sectors. There are many firms that are already delivering the right outcomes for consumers – good products and services at fair prices, supported by high standards of customer service and clear communications,” the FCA said.
“However, we also encounter too many firms that are not adequately considering the needs of their customers, and prioritising good consumer outcomes as an objective of their business activities.”
Key elements
The Consumer Duty will have three key elements which firms will have to follow or face regulatory action. These are:
- The Consumer Principle, which will reflect the overall standards of behaviour the FCA expects from firms. Two options for this are being consulted on: ‘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 which would require three key behaviours from firms. These 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.
- It will also 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.
Four outcomes
Where communications are concerned, the duty will require firms to communicate in a way that, in addition to being fair, clear and not misleading is understandable and facilitates informed consumer decisions.
It is also proposing greater requirements on firms to test their communications are understandable, and adapt them where necessary to ensure they are supporting this outcome.
The FCA is proposing to introduce overarching requirements that will mean products and services sold to consumers have been designed to benefit them and perform as would reasonably be expected.
The regulator noted some customer service processes are deliberately designed to create barriers to consumers taking action or add additional costs.
As a result it is proposing to set requirements for firms’ customer service arrangements to be of a standard that meets consumers’ reasonable needs and expectations.
For example, it should be at least as easy to exit a product or service as it is to purchase it in the first place.
With regard to price and value, the FCA said it was not using this to introduce caps on products, but firms should be able to demonstrate that the benefits of their products and services are reasonable relative to their price.
“The aim of our proposal is to require firms to give greater consideration to the price and the role it plays in relation to the fair value of products and services. This should reduce the need for us to make any such future market-wide inventions,” it said.
Private right of action
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.
The consultation is open for comment until 31 July and the regulator expects to consult again on proposed rule changes by the end of 2021 and make any new rules by the end of July 2022.
FCA executive director of consumers and competition Sheldon Mills 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.”