RegulationNov 18 2021

Clarity needed on FCA’s consumer duty proposals

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Clarity needed on FCA’s consumer duty proposals
© Andrey Popov/Dreamstime.com

The Financial Conduct Authority’s proposals for a new consumer duty require further clarity, according to a group of panelists speaking at the City & Financial Global virtual event.

Speaking at the event, titled FCA Consumer Duty Virtual Summit, Pimfa’s director of government relations and policy Tim Fassam, said there was a lack of detail around what the proposals mean.

He said many firms were looking at the duty not knowing what it means in practice.

“That may come in future consultations, but at the moment, most of our members are saying we just want a bit of certainty and a bit of clarity over what these expectations are, how we demonstrate it and how the regulator will be measuring that,” he said. 

The FCA published its proposals for a new consumer duty earlier this year, designed to create a higher level of consumer protection in retail financial services.

Hitachi Capital group head of compliance Iestyn Evans, who was also speaking on the panel, questioned whether the FCA did not already have all the powers it needed to enforce standards.

“I can see that the FCA proposals are being introduced with the best of intentions,” he said. "I don't feel the case is really being made for why the FCA can't deliver these outcomes through the various existing frameworks they've got and how their existing powers and toolkits don't already enable them to take action against firms who they see who aren't delivering better customer outcomes.”

He said the consumer duty was to a certain degree, “a duplication of rules and protections” that threatened to layer regulations on top of each other, increasing the overall burden for firms.

“My big ask would be that there needs to be a huge amount more detail brought into the next consultation that we're expecting next month or you'll run the real consequences that can danger of unintended consequences where firms can be held to account against quite ill defined high level concepts."

Pimfa’s Fassam agreed, adding: “[Advisers] are already held to a pretty high standard and if you look at the two versions of the consumer principle - that a firm must act to deliver good outcomes for retail clients or a firm must act in the best interest of retail clients - if you are giving advice, you are essentially already held to that.

“Overall, I agree with the concept but there's a lot more work for the FCA to do.”

Fos concerns

Another concern was raised around how the Financial Ombudsman Service operates. 

Fassam said: “The Fos occasionally likes to position itself as if it is not a regulator; it is the sort of judge judging a jury on whether the rules have been followed, but the reality is it sets a form of common law within the financial services sector, and how the Fos decides to interpret the consumer duty will have a huge impact on practically how it operates.

“What we want to avoid is a scenario where we all operate under risk.”

But the Financial Services Consumer Panel chairwoman, Wanda Goldwag, said the reason people had a problem with the Fos was because it has taken an approach similar to a tick-box exercise.

She said: "What happens is if someone complains, they go to Fos, and Fos says fine, but it wasn't fair. I think the duty of care is going to bring the FCA nearer to Fos.

"I actually think the problem that some people see between FCA rules, as it were, as 'common laws', will actually be less of a problem because I think the duty of care will be nearer the Fos."

She added the point about the duty of care was to make very senior people including board directors understand that they have to put customers at the absolute centre.

Goldwag added: "The FCA have dropped the ball, it's hard to argue that that isn't the case. This is a regulator that regulates such a wide area. It is not surprising that even with the world’s greatest staff, they would occasionally drop the ball.

"So the duty of care makes the board of directors or financial service companies, part of the supervision. It adds other people to supervise, the chairs and the non exec directors in particulars, but also the exec directors of the institutions.

"I think that's one of the advantages, frankly that the FCA can't be everywhere, its remit is being extended again, funeral plans are coming in, by now pay later coming in - I think genuinely, their ability to manage everything and not a couple of very big cladders is very difficult, and duty of care should help to resolve this by having board directors actually take part in the supervision of their own organisations.”

sonia.rach@ft.com

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