The Financial Conduct Authority (FCA) has released plans to ensure a higher and more consistent standard of consumer protection for users of financial services.
The rules will require firms to focus on supporting customers to make good financial decisions and avoiding harm at every stage of the customer relationship.
Firm will have to provide consumers with information they can understand, offer products and services that are fit for purpose, and provide helpful customer service.
Sheldon Mills, executive director of consumers and competition of the FCA said: “Making good financial decisions is vital to financial well-being and trust, but too often consumers are not given the information they need to make good decisions and are sold products or services that do not offer the benefits they might expect. We want to change that.
“The new duty will drive a change in culture at firms. We expect firms to step up and put consumers at the heart of what they do, and we’ll be holding senior managers accountable if they do not. The duty will also help create an environment for healthy competition between firms, encouraging them to be innovative in developing products and services that meet consumer’s needs.”
To implement the plans, the FCA will use assertive supervision and its new data led approach to intervene when it identifies practices that do not deliver for consumers.
Simon Morris, a financial services partner with law firm CMS, said: “The FCA’s new Consumer Duty showcases the Pollyanna Principle that retail customers can get ‘good outcomes’ if firms just make an extra effort.
“The trouble with outcomes-based regulation is that the real world is full of flaws – markets are fickle and customers sometimes muddle-headed.”
Morris added that a plethora of existing rules require firms to construct and sell suitable products and services, but the new suite of regulations largely repackages them with three strings and one sweetener.
He said that obtaining a good outcome will saddle firms with an extra duty of vigilance in design, communication, and after-sales.
In addition, avoiding foreseeable harm is always viewed after the harm occurs, said Morris, therefore it will be hard for firms to stop hindsight being the determinant.
“The Ombudsman will as ever be the court of no appeal. The FCA promises to work with FOS to ensure a consistent approach, but firms know all too well that FOS decisions create binding precedents,” he said. “The one sweetener is that breach of the Principle can’t found a Court claim.”
Anne Fairweather, head of government affairs and public policy at Hargreaves Lansdown welcomed the new approach.
“An ambitious deadline of April 2023 has been set but, paired with the iterative approach they’ve outlined in today’s announcement, there should be time to iron out wrinkles in the framework,” said Fairweather. “As always with wide ranging reform, this will prove contentious in some quarters, especially with headline costs up to £2.4bn being quoted.”
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