How the consumer duty is affecting providers and advisers

This article is part of
Guide to the consumer duty

How the consumer duty is affecting providers and advisers
The FCA has said the consumer duty will lead to a “major shift” in financial services. (Bloomberg)

The financial advice industry is no stranger to regulatory change following the Retail Distribution Review, the contingent charging ban on defined benefit transfers, and upcoming changes to the appointed representatives regime to name a few.

But the Financial Conduct Authority’s new consumer duty is so significant even the regulator has said it will lead to a “major shift” in financial services.

Indeed, the duty applies not just to advisers but across the distribution chain, from product and service origination through to distribution and post-sale activities.

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“The consumer duty is a huge opportunity to ensure firms are empowered to think beyond simple compliance with a rule book and take a holistic approach to ensuring customers receive good outcomes,” says Andy Curran, chief executive officer of Standard Life, part of Phoenix Group.

“The FCA has put the onus on our industry to define what ‘good outcomes’ mean for our customers and this is a challenge every customer-focused organisation will feel passionate about.

“These outcomes don’t just take the form of ensuring product suitability or growing someone’s savings. They are much broader and cover everything from a customer’s interaction with a contact centre down to the quality of communication and support they receive.”

How did the consumer duty come about?

In 2018 the FCA discussed stakeholders’ concerns that its regulatory framework may be inadequate to address the level of consumer harm in retail markets. According to the regulator, some stakeholders called for a ‘duty of care’ on firms when they deal with consumers.

Consultation papers on a consumer duty followed in 2021, with the FCA saying that while it had addressed harmful practices over time, it wanted to see more firms getting it right in the first place.

In July the regulator set out final rules and guidance for a consumer duty applying across the distribution chain, as well as:

  • To products and services offered to retail customers;
  • To firms dealing with prospective and actual customers; and
  • Across all of a firm’s activities, from high-level strategic planning to individual customer interactions.

“This is not a narrow regulatory change in the mould of the Insurance Distribution Directive, Mifid or indeed the RDR,” says Simon Harrington, head of public affairs at trade body Pimfa.

“It is a shift in mindset at a senior management level that goes far beyond the realms of compliance offices.”

The current challenge is to show how good consumer outcomes are ensured. “It is the question of evidencing why decisions are made, which sits at the heart of the challenge firms face in implementing and complying with the duty,” says Harrington.

“Firms will ultimately be empowered to define what they think a good outcome is, and then the onus is on them to show why and the steps they are taking to achieve this outcome. For firms, there is no correct answer and there is no defined pathway for them to follow.”

What are providers doing to meet the consumer duty?

What is expected of firms under the duty, the FCA says, will be interpreted in light of what is reasonable given the circumstances, including its role in the distribution chain.