Financial Conduct Authority  

What is the consumer duty and how will it impact financial services?

  • Understand what the new consumer duty is.
  • Explain how it interacts with existing rules.
  • Identify what it means for businesses going forwards.

As such, there is more than sufficient competitive pressure in place to ensure good customer outcomes are at the forefront of everything investment platforms do.

If you think about the advice sector, failing to comply with the three proposed cross-cutting rules – acting in good faith, avoiding foreseeable harm and supporting clients to achieve their financial objectives – would likely see any business face a barrage of complaints. You could argue that is already the case under the current regulatory framework.

The role of the FCA

Given the new consumer duty is intended to replace existing FCA rules – most notably the treating customers fairly principle – it would have made sense to ditch this altogether to give businesses clarity about their responsibilities. 

The decision to retain this principle in the rulebook alongside the new consumer duty risks causing confusing layering of regulation, which is far from ideal. If the FCA really wants to signal a step change away from the previous regulatory model, it should discontinue the old rules altogether.

It is indisputable that the onset of the consumer duty will require all businesses – even the ‘good guys’ – to review how they operate and potentially make changes. By the FCA’s own estimate, implementation costs could run as high as £2.4bn, representing a huge burden across various sectors.

It will therefore be vital the regulator recognises its own role in making the consumer duty work effectively. 

Firstly, the volume of regulatory change in recent years has been extreme. For the cultural shift the FCA envisages to occur, the regulator needs to recognise that businesses have finite resources to deal with constant change and, where possible, give breathing space to implement the duty effectively. 

Secondly, the FCA needs to better consider the appropriateness of its own interventions in different markets rather than simply foisting rules on all businesses. The most obvious recent example of this in the pensions sector was investment pathways for drawdown, introduced in February 2021, which drained colossal amounts of time and resources for almost no benefit to platform and self-invested personal pension customers. 

Many businesses argued strongly that these reforms were inappropriate for their part of the market – in particular because of the timing of the intervention at the point of access – but were ignored by the regulator. The time and resources used designing and implementing pathways could have been better spent creating products or communications that would actually have been useful to customers.

The FCA needs to apply the consumer duty principles to its own work by ensuring any interventions are right for different markets and give businesses leeway to implement them in a way that suits their customers, rather than taking a blanket approach and/or being overly prescriptive.