Financial Conduct Authority  

Will the consumer duty improve outcomes or cause more confusion?

Regulatory hurdles

As in any sector that is heavily regulated, light-touch does not always equate to an easy solution. In fact its ambiguity can often create more obstacles. 

The consumer duty consultation, which closes its doors for submission at the end of July, could narrow the scope for banks to find alternative means by which to generate revenues. The FCA itself has made clear that it is poised to intervene if it deems a company's pricing to be unfair. 

A key element of the proposals call for a step-change whereby "consumers are better equipped to achieve good outcomes from financial services" – the assumption being that consumer duty would help customers reach financial freedom, making financial products work for them, not banks.

What perhaps has not been considered, though, is how banks must adhere to this. If a financial product is unlikely to achieve 'good outcomes' for a customer, it is likely that banks, who in their very nature are risk-averse, will limit access to these products where the risk is deemed too high. Again, narrowing customers' choices. 

Which rules take priority?

A less consumer-specific but still pertinent question to ask of the consumer duty is how this regime might interact with existing frameworks.

While it is not uncommon for businesses to grapple with multiple regulations and, indeed, regulators, the FCA's proposals touch on several recommendations that have been in situ for some time. Shortly following the turn of the century, the FCA published a handbook for financial businesses in which it states they "must pay due regard to the interests of its customers and treat them fairly". 

It is clear that the guidance published in the early 2000s, which has been a linchpin for banks, and the most recent consumer duty published two decades later, bear a striking resemblance. A resemblance that makes it difficult for businesses to establish which takes precedence.

It is becoming increasingly unclear for companies on which piece of regulation supersedes others, and so it is vital that the regulator makes clear how this latest guidance interplays with existing rules.

While there are certainly some areas for consideration, and clarification, before the rollout of the consumer duty, it is likely to have significant impact on financial services companies.  

There will be a fine line to tread, though, in ensuring the consumer duty achieves the goal of supporting customers and not creating unnecessary hurdles for financial services in the UK at a time when regulators have stated that they want to simplify the UK regulatory regime in a post-Brexit era.  

Rosanna Bryant is head of financial regulation at Addleshaw Goddard