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.
  • Understand what the new consumer duty is.
  • Explain how it interacts with existing rules.
  • Identify what it means for businesses going forwards.
pfs-logo
cisi-logo
CPD
Approx.30min
pfs-logo
cisi-logo
CPD
Approx.30min
twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
pfs-logo
cisi-logo
CPD
Approx.30min
What is the consumer duty and how will it impact financial services?
Photo by Andrea Piacquadio from Pexels

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.

On a more positive note, the regulator’s proposals for reforms in the non-workplace pensions market – including the creation of a default fund (or potentially funds) and warnings to those invested in cash – appear less prescriptive, suggesting lessons are being learned. 

The risk of spurious claims

It will also be important in policing this new approach that the regulator and others – most notably the Financial Ombudsman Service – acknowledge the natural limitations when trying to ensure good outcomes for customers. 

When investing for the long term, risk is inherent. Even with perfect target market definition, processes and communication – and the best will in the world – some people will always misunderstand the nature of that risk and suffer losses they may feel aggrieved about. 

Claims management companies will inevitably seize on this shift in approach from the FCA to pursue spurious cases against businesses. The FCA must make clear in both its communications and actions that such claims, which suck time and resources away from vital customer-focused work, will not be tolerated. 

As part of this, the regulator must work closely with the Fos to ensure the intention of this new regulatory approach is reflected in its stance to future complaints.

The FCA must also face up to the inconvenient truth that most ‘bad’ actors in financial services either flout existing rules entirely or take a slapdash approach to treating customers fairly.

So, while the FCA is right to focus on boosting standards across the market, there also needs to be a credible enforcement threat against the minority of businesses who consistently fail savers and investors.

PAGE 3 OF 4