Regulation  

Firms to have until April 2023 to implement FCA's consumer duty

Firms to have until April 2023 to implement FCA's consumer duty

The Financial Conduct Authority has said it will press ahead with its proposed new consumer duty, with an implementation date of April 30, 2023.

In a consultation paper published today (December 7), the FCA said it would move forward with the proposals, despite concerns from some firms around their proportionality and design, as well as any potential consequences. 

Alongside today's consultation, the FCA has published draft guidance to help firms prepare before the introduction of the new duty. 

The FCA first set out plans for a new consumer duty in May, stating it was designed to create a higher level of consumer protection in retail financial services.

Currently firms are bound by FCA rules and principles to treat customers fairly, which include offering products and services at fair prices.

But in May, the regulator said it had seen evidence of practices which caused consumer harm, including firms providing information which was misleadingly presented or difficult for consumers to understand.

The consumer duty, confirmed today, 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 acting in good faith;
  • It will 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.

The FCA received 235 responses to the consultation from firms, professional and trade bodies, service providers, academics, consumer organisations and individuals. 

It said all respondents saw the consumer duty, and the shift towards outcome-based regulation, as “a significant undertaking”. 

While most agreed the consumer duty would succeed or fail based on the FCA supervision and enforcement of it, some firms raised significant concerns about the potential unintended consequences. 

Some suggested that the FCA could achieve similar outcomes, with lower cost and less risk of unintended consequences, by making new rules under its existing principles or through more rigorous management of existing rules. 

But the FCA said it did not agree that its objective could be met without new rules.

It said: “We intend to set higher standards in new rules, informed by our experience intervening in markets and firms and what we know about consumers. We will back up these rules with assertive supervisory and enforcement action.”

Some industry respondents also felt that the proposed structure could create complexity both for firms’ understanding of the FCA's expectations, and for consumers’ understanding of firms’ obligations to them. 

Others said they felt the creation of a new structure would only replicate much of what is already in the handbook, while a few respondents said removing the cross-cutting rules and only having a consumer principle and the outcome rules could be an alternative.

What is reasonable?

Meanwhile, several respondents felt there should be a ‘reasonableness’ element, for example by requiring firms to take ‘reasonable steps’ to deliver good outcomes for consumers and others raised concerns that it must be clear that what was reasonable under the consumer duty.