The FCA is currently consulting on a Consumer Duty that would set clearer and higher expectations for firms’ standards of care towards consumers. The FCA proposals mark a shift in its expectations of firms and move towards a stronger focus on consumer outcomes throughout the customer lifecycle. The FCA hopes these changes will result in consumers always getting products and services that are fit for purpose, that represent fair value, and are clearly communicated and understandable.
The proposals relate to products and services sold to retail clients, i.e. all clients other than those categorised as professional clients or eligible counterparties. The new duty would apply to all regulated firms, whether they have a direct relationship with the end customer, or are merely involved in the manufacture or supply of products and services to retail clients.
The FCA considers that the Consumer Duty is required because consumers’ ability to make good decisions can be impaired by various factors, including their weaker bargaining position, asymmetries of information, or lack of understanding. The FCA is particularly concerned about firms exploiting consumers' behavioural biases, and what they describe as "sludge practices": firms introducing excessive friction in their processes that prevents consumers from making decisions in their interests.
The Consumer Duty will have three key elements:
1. The Consumer Principle. This is the overall standard of behaviour the FCA will expect from firms. The FCA is consulting on two different options for the wording:
- "a firm must act to deliver good outcomes for retail clients"; or
- "a firm must act in the best interests of retail clients".
2. Cross-cutting rules. These rules would develop the FCA's overarching expectations for common themes that apply across all areas of firm conduct. They would require three key behaviours from firms:
- To take all reasonable steps to avoid foreseeable harm to customers.
- To take all reasonable steps to enable customers to pursue their financial objectives.
- To act in good faith towards customers.
3. The four outcomes. FCA rules and guidance would set out more detailed expectations for firms regarding achieving the following specific outcomes:
- Communications equip consumers to make effective, timely and properly informed decisions about financial products and services.
- Products and services are specifically designed to meet the needs of consumers, and sold to those whose needs they meet.
- Customer service meets the needs of consumers, enabling them to realise the benefits of products and services and act in their interests without undue hindrance.
- The price of products and services represents fair value for consumers.
The FCA says that the Consumer Duty will give firms more certainty about the standards the FCA expects of them and, correspondingly, the standards that consumers can expect of firms.
Comments can be made on the consultation paper until 31 July 2021. The FCA expects to publish a second consultation, with draft rules, by 31 December 2021 and will make any new rules by 31 July 2022. This is in line with the requirements laid down in the Financial Services Act 2021.