FCA signals tougher approach to enforcement and intervention

Jonathan Cavill of Pinsent Masons was commenting as the regulator published the second edition of its ‘Enforcement Watch’. The newsletter comes as the FCA sharpens its focus on enforcement activities three years since it implemented the consumer duty.

The duty, which came into force on 31 July 2023, requires financial firms to act to deliver good outcomes for retail customers by acting in good faith, avoiding foreseeable harm and enabling and supporting their customers to pursue their financial objectives.

The FCA says it has carried out 11 investigations examining potential breaches of the duty since its implementation spanning the insurance, pensions, wealth management, consumer investments, peer-to-peer lending and claims management sectors.

Most recently, these include a probe into financial promotions and high fees in the wealth management sector, an investigation into potential miscommunications and conflicts of interest by a peer-to-peer lending platform, as well as several investigations looking at consumer harm in the home and travel insurance sectors.

Unusually, the regulator also provides specific details about two recent investigations into consumer concerns related to claims management companies (CMC) operating in the motor finance sector.

This follows the announcement in early May that the FCA was launching a widespread review of the claims management sector after growing concerns that consumers are being failed by CMCs and law firms involved in the claims space.

Commenting on the newsletter, Cavill said: “Clients should be aware of the looming spectre of FCA enforcement outcomes on the consumer duty rules.” He said this would provide some helpful “clarity” on what is expected of firms, but also might “jolt others into action” to embed compliance with the duty more broadly across the financial services sector.

Tom Murrell, a financial services regulation expert at Pinsent Masons, said the regulator’s decision to publish details about these interventions provided useful insight into the FCA’s ongoing enforcement priorities and potential future direction of travel. “It is important for the industry to see what the FCA is doing, particularly where previous public statements have drawn attention to specific sectors such as CMCs,” he said. “The market will have a keen eye on these actions, particularly given CMCs’ proactivity around issues such as PPI and, more recently, motor finance.”

Earlier this month the regulator outlined proposals to give insurers greater flexibility in how they can provide consumer disclosures while still maintaining protections for UK retail customers. The regulator has also published a separate, but parallel consultation, on the scope and proportionality of the UK consumer duty and how specifically it should be applied to businesses with non-UK customers.

Murrell said the newsletter’s focus on the "fair value" requirements of the consumer duty was also illuminating for firms. The regulator provides some 'bad practice' examples of how not to approach these issues, including one investigation into whether a firm in the travel insurance sector ‘hollowed out’ a product to reduce features of the policy amid concerns this could have ultimately been harmful to vulnerable customers.

“The newsletter also points to the regulator’s increasingly proactive focus on using its supervisory tools to address instances of customer harm promptly, rather than engage in a high number of enforcement actions that take much longer to conclude,” added Cavill.

During the last financial year, the regulator said it intervened on 382 occasions, including inviting five different financial firms to sign an asset restriction voluntary requirement (VREQ) – a regulatory obligation that firms agree to abide by with the regulator – after identifying concerns related to consumer duty compliance.

VREQs are typically published on the Financial Services Register for transparency and consumer protection reasons. The FCA may remove these restrictions once the issues are resolved.