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Consumer duty 'will spark test cases at Fos'

Consumer duty 'will spark test cases at Fos'

The Financial Conduct Authority's consumer duty regulation could spark a flurry of claims as ambulance chasers test the boundaries of the regulator's new rules.

Carl Wallis, compliance and risk director at Sesame Bankhall Group, says he expects claims management companies to test the Financial Ombudsman Service's treatment of the rules, which present the biggest regulatory change since the retail distribution review 10 years ago.

The duty consists of a new principle: "A firm must act to deliver good outcomes for retail customers", as well as three cross-cutting rules: firms must act in good faith, avoid foreseeable harm and enable and support customers to pursue their financial objectives. The latter rules are why firms might find themselves in the crosshairs at the Fos, Wallis predicted.

Speaking at the Open Banking Excellence Campfire webinar on July 21, Wallis said: "We will see tests against the cross-cutting rules, so for example claims management companies or other stakeholders might bring about claims to Fos to understand what they will and won't rule on.

"What that will create is more work for firms, a potential backlog of cases, more cost in terms of administration."

But he does not think it will make a difference to firms' liabilities as such, as the Fos already judges cases by whether or not firms have acted in good faith. 

"Firms are worried about a disconnect between FCA rules and Fos rulings," he said. "But in terms of liabilities at this point, I'm not entirely sure it will change, simply because Fos does take into account a lot of things that the consumer duty is trying to bring about when it opines on cases currently."

Vaughan Jenkins, business development director at Moneyhub, said there could be different interpretations of the standards expected of firms.

He said many advisers are worried that even if they comply with the consumer duty, they could still find themselves at the wrong end of rulings, with case law potentially trumping all of that on top.

"That must be a worry, particularly for firms that are at the sharp end of all of this with customer interactions and have all the professional liabilities sitting on their shoulders."

Tony Crane, founder of Crane Consultancy, had also predicted the industry would face issues in how the Fos will apply the rules, particularly in the transition period.

"You'd like to think the duty wouldn't have any [unintended consequences]," he said. "But given the breadth of the change, it does seem impossible that there aren't going to be some elements that end up with outcomes that may be less desirable."

He said he was most concerned about how back books would be assessed under the new rules. "I do have a concern about retrospective action," he said.

During a press briefing yesterday (July 26), the FCA said it will measure the success of the duty by monitoring Fos final decisions that are to do with fees, charges, or inappropriate products or services sales.