Consumer duty plan a ‘considerable shake up’ for financial firms

Jonathan Cavill, financial regulation expert at Pinsent Masons, said the “far reaching” changes come at a time when the industry “is already under incredible pressure from various other regulatory initiatives, as well as dealing with both the pandemic and Brexit”.

“The timelines for implementation are ambitious and will undoubtedly be a challenge for many firms,” he said.

In a new consultation paper (243 page / 2.26MB PDF), the FCA said it wants to improve outcomes for UK consumers by explicitly setting a higher standard of care across all retail financial services markets by April 2023.

At the heart of its plans is the introduction of a new consumer principle, which would replace principle six - the so-called Treating Customers Fairly principle - and seven - requiring firms to communicate in a clear, fair and not misleading way with clients - where the Consumer Duty applies.

The new consumer principle would require retail financial services firms to consider the likely outcomes customers will receive throughout the product lifecycle.

Firms will need be able to prove that their customers are receiving good outcomes – and take appropriate action when they are not.

The FCA said a firm’s board and management will be responsible for whether it is delivering good outcomes, and proposed amending the senior managers and certification regime (SMCR) to include a new rule that senior staff must “act to deliver good outcomes for retail customers” where their firms’ activities fall within scope of the duty.

Cavill said: “This is a considerable shake up for the industry, and a massive undertaking for regulator, which will need to find its supervisory footing in respect of this new consumer duty.”

“The FCA hopes that the handbook rules and guidance and non-handbook guidance should provide greater clarity on its expectations of the outcomes that should be achieved, but I suspect that much will only be clear after the FCA has been able to assess implementation after the event,” he said.

Cavill added: “At the heart of these proposals is a shift in gear from the FCA in requiring firms to ‘act to deliver good outcomes for retail clients’. However, ‘acting to deliver good outcomes’ may not always be enough to result in good outcomes, as eventualities outside of a firm’s control could very well cause an outcome which a retail client is not happy with – despite the firm acting entirely above board.”

“The FCA and Financial Ombudsman Service (FOS) will need to work closely – as alluded to by the FCA – to promote consistency on how the new consumer duty should be interpreted to avoid discrepancies between regulator and ombudsman which would only confuse matters and give the industry mixed messages,” he said.