The FCA has published a second consultation on its plans to introduce a new Consumer Duty for firms active in the financial services market. It says it wants to see a higher level of consumer protection in retail financial markets and drive a system where firms can thrive and consumers make informed decisions.
In particular, the FCA wants to see firms ‘consistently placing consumers’ interests at the centre of their businesses and extending their focus beyond ensuring narrow compliance with specific rules.’ Details about the FCA’s first consultation were published in Brunel News July 2021.
The new consultation sets out more detailed proposals about how the new Consumer Duty will operate. It will require firms to ‘act to deliver good outcomes for retail customers’ and it is expected the new rules will give the FCA greater ability to hold firms and their senior management to account.
The FCA has clarified that the scope of the new Consumer Duty will be aligned to the existing conduct of business rules for each sector – such as the mortgages, investment or insurance business sourcebooks.
At this stage, the FCA has decided not to introduce a private right of action by consumers for breaches of the new duty, but it will keep this under review.
The regulator recognises that the new duty will be burdensome to firms and expects them to face large costs in meeting the new regulations. It expects firms to produce and review regular management information on customer outcomes and firm’s boards will need to produce, as a minimum, an annual report.
The scope of the rules will go beyond the firms dealing directly with customers, so those producing products for the retail market will also be captured, as well as distribution chains. For example, an investment bank that designs a structured product for sale to retail customers by other entities will be subject to the Consumer Duty.
James Burgoyne of Brunel Professions said: “The FCA has stepped back from giving retail clients a private right of action for a breach of the Consumer Duty, so disputes will continue to be settled through existing channels, including the Financial Ombudsman Scheme.”
“Many of the expectations under the Consumer Duty are subjective, so firms will need to use their judgement to ensure they are meeting the regulator’s requirements. This will mean that firms will need to carefully capture and review management information, so that they have a detailed record if challenged by the FCA,” Mr Burgoyne added.
Following the consultation, the FCA is planning to publish a policy statement and final rules by July 2022. The new regime is expected to come into force in April 2023.