The implementation of the consumer duty can “underpin a lot of the other work" the Financial Conduct Authority is currently doing, according to its CEO, Nikhil Rathi.
Speaking to the Treasury Committee today (December 12), Rathi stated that the “cross-cutting” nature of consumer duty, which was introduced in July, can “underpin” the authority’s other work.
As an example, Rathi pointed to recent proposals on the advice/guidance gap that the regulator published on Friday (December 8).
“Underpinning the advice/guidance boundary review is a proposal that we can make some quite far reaching changes to solve what has been a very intractable problem for our country, but we can lean on the consumer duty when doing that.”
This is not the only area that could benefit from consumer duty in this way as Rathi also identified artificial intelligence.
“when looking at the way we regulate AI going forward, we can lean on consumer duty because it gives clear outcomes without us having to be too prescriptive.”
Other positives
Rathi also recounted some examples of the consumer duty’s positive impact, stating: “We have seen a number of firms simplify their language, make their products more accessible, and be more upfront about exclusions.”
He also stated there are some “very significant cases” where firms have revised their fee structures and have had to explain that new approach to their own investors.
Other positives identified by Rathi included saving rates communications, which have “stepped up considerably”, and firms overhauling product suitability and talking openly around how consumer duty is driving that.
Also speaking on the impact of consumer duty was FCA chair, Ashley Alder, who stated that the “radical change” of consumer duty is an approach which has been noticed overseas.
“Many overseas regulators are looking at what we are doing in the UK and taking a lead on,” he said.
Enforcement
Rathi also spoke about the authority’s approach to the enforcement of consumer duty specifying that it intends to take a “proportionate approach” to any breaches.
He specified this doesn’t mean enforcing every technical breach but instead consists of focusing on the most “egregious” harms.
This will allow the duty to “settle in” and, according to Rathi, “if you allow firms time to remedy issues that we identify, enforcement will come some way down the track”.
Additionally in the committee hearing, Alder described consumer duty as a “big test” for the organisation as it signifies a large change in approach.
“The top issue in terms of how the organisation configures itself around consumer duty is, from my perspective, absolutely critical.
“It won’t happen overnight as it was introduced formally in the summer but it is a major area of focus without any doubt.”
tom.dunstan@ft.com
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