“The consumer duty will lead to a major shift in financial services and will promote competition and growth based on high standards. As the duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.”
The 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 to deliver good outcomes for retail clients';
- Cross-cutting rules which will 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.
Staff and resourcing
The FCA said the consumer duty rules will be in the form of guidance for firms to follow.
In order to be able to supervise and enforce this effectively, Mills said the firm will likely need to add resources and hire staff.
“We were investing in two or three things at the FCA. One is data enhancement, so we're becoming a data led regulator [and] that will mean better equipped to have information coming into us. We can assess and analyse data to see what outcomes are being achieved through the full outcomes that we expect from the duty.
“Secondly, we've invested in staff at our authorisations gateway which will be a really important part of enforcing this duty is investing in our supervision operations.”
Mills said the FCA is reorienting its supervision activity around two broad principles: one which is tackling harm with more active intervention and two, this new consumer duty setting higher standards.
“I am confident that we will be able to have the right staff and the right component to ensure and implement this,” he added.
“However, what this duty is and what outcome based regulation is, is that firms are implementing this duty.
“The firms are responsible for ensuring they look at the guidance that will support them on that and they implement this strategy and ensure they're providing good customer outcomes.”
The FCA expects to see strong willingness from firms and trade associations in order for it to be successful.
The regulator first set out plans for a new consumer duty last 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.