The Financial Conduct Authority’s new consumer duty puts the protection of retail consumers “front and centre”, according to Sara Cody, counsel and Duncan Campbell, senior associate, at Linklaters.
Speaking to FTAdviser, Cody said over recent years, the FCA has taken increasingly frequent action to require firms to improve their treatment of struggling or vulnerable customers.
“Since then, we have witnessed a deepening cost of living crisis, spiralling energy costs and more aggressive scam activity,” she said.
“Greater numbers of investors are turning to unregulated or riskier investments.
“Enter the consumer duty.”
Drafted in response to a statutory requirement to introduce a duty of care for consumers, Cody explained that the FCA’s consumer duty represents a significant shift in its expectations around the firm's treatment of retail customers.
Unlike treating customers fairly, it applies throughout the distribution chain, including to firms without direct relationships with retail customers, provided that they can materially influence customer outcomes.
“The old distinctions between retail and wholesale firms are to an extent being broken down,” she said.
“All firms involved in a distribution chain that ends with a retail customer must apply their minds to how their products and services deliver good customer outcomes.”
Cody argued that the duty’s outcomes-focused approach is actually intended to give firms more flexibility to tailor implementation to meet the demands of their businesses and to apply more readily to future technological and market developments.
“The consumer duty represents a powerful new way for the FCA to hold firms to account for the benefit of retail consumers,” she said. “The year of the consumer beckons.
“The FCA has set itself a high bar, identifying tangible metrics against which it intends to measure the success of the duty."
What will we see in 2023
To get a sense of its potential impact, Cody explained that it is important to keep the consumer duty in mind when considering two areas that will be prominent in 2023.
First, the FCA’s proposed new anti-greenwashing rule should come into force in June.
This will address greenwashing in financial products and provide greater clarity to investors about the sustainability of their investments.
The rule requires sustainability-related claims to be clear, fair and not misleading, and consistent with the sustainability profile of the product or service.
However, sustainability claims made to retail customers will also have to comply with the rules in the consumer duty on customer understanding.
“These go further, focusing not just on the words on the page but how they are understood by the recipient,” she said.
“There are also greater requirements to test that understanding. The duty will be the framework through which all other financial services rules with a retail touchpoint must be viewed.”
Secondly, the FCA is focused on using its supervisory powers and is already doing so more frequently, Cody noted.
Often overlooked, these allow the FCA to impose wide-ranging requirements on regulated firms.
“Once the July 2023 deadline for implementation passes, we expect the FCA to use these powers where it is concerned about compliance with the consumer duty,” she said.
“The duty turns much of the existing FCA guidance around the treatment of retail customers into more enforceable regulatory rules.”
Cody added: “The duty’s outcomes-focused approach also leaves considerable scope for interpretation by firms as to how they apply and, therefore, room for disagreement.”
The implementation period for the consumer duty lasts till July 2023 for new and existing products and then there's an additional year to July 2024 for back-book or closed products.
In that implementation period, firms need to undertake the value assessments of all their products using the data and evidence about whether they are fair value or if not, then make necessary changes to the price or structure of the benefits to ensure that customers do receive that fair value.
The FCA has said that it is planning a programme of supervisory and if necessary, enforcement work to ensure that firms have implemented the duty correctly.
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
