In a policy statement published today (July 27), the FCA announced that companies will have until July 31, 2023 to implement the consumer duty rules for all new and existing products and services that are currently on sale.
The implementation deadline will be extended for a further 12 months (until July 31, 2024) for closed book products to give firms more time to bring these older products, that are no longer on sale, up to the new standards.
The FCA previously said there would be an implementation date of April 30, 2023 but many firms complained this would not be enough time.
Speaking at a press briefing yesterday (July 26), FCA executive director of consumers and competition Sheldon Mills, said: “Firms do need time in order to implement this but consumers also need to be supported in terms of getting good outcomes, so you're always balancing the needs of implementation and operational effectiveness.
“Our judgement is that giving an additional three months is sensible, we've listened to the industry, we've also listened to consumer groups, and that's where we've ended up. Closed book products, there's more complexity there so we think that 24 months is needed.”
Mills said it will still be challenging for the industry, and the regulator recognises that, so it will “do its best” to support firms.
The regulator said its new consumer duty will “fundamentally improve how firms serve consumers” and set higher and clearer standards of consumer protection across financial services.
“It will require all firms, for those designing products through to those selling or advising products and services, to put their consumers' needs first,” Mills said.
The duty is made up of an overarching principle and new rules that firms will have to follow.
It will mean that consumers should receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it.
“In turn this will make consumers better able to make good financial decisions,” Mills added. “For us at the FCA, this duty is at the heart of our new three year strategy to improve outcomes for consumers and in markets throughout the UK and it's a key element of our work to set and test high standards.”
The City watchdog said clarity on its expectations, alongside firms focusing on what their customers need, should lead to more flexibility for firms to compete and innovate in the interests of consumers.
The duty will include requirements for firms to:
Mills added: “The current economic climate means it’s more important than ever that consumers are able to make good financial decisions. The financial services industry needs to give people the support and information they need and put their customers first.
“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 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.
The duty includes a new consumer principle that ‘a firm must act to deliver good outcomes for retail customers’ and will replace its current principles six and seven.
sonia.rach@ft.com
What do you think about the issues raised by this story? Email us on FTAletters@ft.com to let us know