The FCA has set out plans for a new consumer duty, designed to create a higher level of consumer protection in the retail financial services market.
Currently, firms are bound by FCA rules and principles to treat customers fairly which include offering products and services at fair prices.
However, in a statement today (May 13), the FCA said it had seen evidence of practices that cause consumer harm, including firms providing information which is misleadingly presented or difficult for consumers to understand.
As a result, the regulator is proposing to expand its existing rules to ensure firms provide a higher level of consumer protection consistently.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “The package of measures we are proposing will enhance our existing rules and is designed to tackle the harms we see in financial services markets, and their causes, as well as put consumers in a stronger position to make good decisions.
“We want firms to be putting themselves in the shoes of consumers and asking ‘would I be happy to be treated in the way I treat my customers?’. We want consumers to be able to advance their financial wellbeing and build positive futures for themselves and their families.”
The consumer duty will require firms to ask themselves what outcomes consumers should be able to expect from their products and services, act to enable rather than hinder these outcomes and assess the effectiveness of their actions.
It will include three key elements:
- The consumer principle, which will reflect the overall standards of behaviour the FCA expects from firms. The wording being consulted on is: 'a firm must act in the best interests of retail clients' or 'a firm must act to deliver good outcomes for retail clients';
- Cross-cutting rules which would require three key behaviours from firms: taking all reasonable steps to avoid foreseeable harm to customers, taking all reasonable steps to enable customers to pursue their financial objectives, and to act in good faith;
- It will also be underpinned by a suite of rules and guidance that set more detailed expectations for firm conduct in relation to four specific outcomes – communications, products and services, customer service and price and value.
Firms who fail to follow these rules could face regulatory action.
The FCA expects the new duty to drive a shift in culture and behaviour at firms, meaning that consumers always get products and services that are fit for purpose, represent fair value and are clearly communicated and understandable.
This will help, rather than hinder, consumers to make good choices and be confident that they will receive good customer service, it said.
According to the FCA’s 2020 Financial Lives Survey, 1 in 4 respondents said they lacked confidence in the financial services industry and only 35 per cent of respondents agreed that firms were honest and transparent in their dealings with them.
The consultation is open for comment until July 31, 2021 and the FCA expects to consult again on proposed rule changes by the end of 2021 and make any new rules by the end of July 2022.