FCA proposes stronger protection for consumers

The consumer duty, which firms will have to follow or face regulatory action, including enforcement investigations if they fail to do so, will have three key elements:

1. 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 in the best interests of retail clients’ or ’a firm must act to deliver good outcomes for retail clients’.
2. Cross-cutting rules which would require three key behaviours from firms. These include taking all reasonable steps to avoid foreseeable harm to customers, taking all reasonable steps to enable customers to pursue their financial objectives and to act in good faith.
3. The duty will also 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.

The FCA said it has seen evidence of practices that cause consumer harm, including firms providing information which is misleadingly presented or difficult for consumers to understand, hindering their ability to properly assess the product/service.

The regulator is hoping the new duty will drive a shift in culture and behaviour for firms.

Sheldon Mills, executive director of consumers and competition at the FCA, said: “We want firms to be putting themselves in the shoes of consumers and asking ‘would I be happy to be treated in the way I treat my customers?’. We want consumers to be able to advance their financial wellbeing and build positive futures for themselves and their families.”

The consultation has been widely welcomed. Caroline Siarkiewicz, chief executive of the Money and Pensions Service, said: “Financial services providers have a critical role to play in ensuring that their customers can truly make the most of their money and pensions, by developing accessible products and services that support good financial decisions and deliver strong financial outcomes."

Conor D’Arcy, head of research and policy for the Money and Mental Health Policy Institute, said: “This is welcome recognition from the FCA that financial firms need to do more to protect customers, including those with mental health problems, who are three and a half times more likely to be in problem debt.”

Debt advice charities also agree that this consultation is a step in the right direction. Peter Tutton, head of policy, research and public affairs at StepChange Debt Charity, explained that poor practice among creditors, particularly among firms providing high-cost products, continues to cause harm to consumers

He said: “As the government takes forward its wider review of the financial services regulatory framework, there is a need to embed a strong duty of care in legislation requiring firms to operate with a ‘fair by design’ principle and not take advantage of consumer vulnerabilities, biases or constrained choice. “

Joanna Elson CBE, chief executive of the Money Advice Trust, believes that fair outcomes for consumers should be at the heart of everything financial services firms do. She said this is a vital opportunity to ensure firms are doing all that they can to prevent financial harm occurring.