A Guide to the new FCA Consumer Duty

Why have the FCA implemented the Consumer Duty in 2022? 

The first set of changes under the new Consumer Duty started to take place in October 2022 and must all be in place by July 2024.

The new Consumer Duty is a direct result of the FCA’s review of its regulatory framework and how it applies its Principles. 

The FCA acknowledges that it sees ‘many good practices’ exhibited by firms in retail sectors leading to the right outcomes for consumers.  

However, in spite of the various initiatives introduced over the last two decades, the Regulator states that it still sees too many practices that cause consumer harm, these include: 

• firms providing information which is misleadingly presented, or difficult for consumers to understand, hindering their ability to properly assess the product / service’s suitability for their needs   
• products and services that don’t deliver the benefits that consumers reasonably expect, or are not appropriate for the consumers they are being targeted at and sold to   
• products and services that do not represent fair value, where the benefits consumers receive are unreasonable in relation to the price they pay  
• poor customer service that hinders consumers from taking timely action to manage their financial affairs and making use of products and services, or increases their costs in doing so   
• other practices which hinder consumers’ ability to act, or which exploit, in the Regulator’s words, ‘information asymmetries, consumer inertia, behavioural biases or vulnerabilities’ 

The FCA contends that where these practices occur, consumers are at greater risk of suffering harm. 

For example, they may: 

• find it harder to make an informed or timely decision 
• buy products and services that are inappropriate for their needs, of inadequate quality, too risky or otherwise harmful 
• incur greater monetary and non-monetary costs 
• receive sub-standard treatment during their relationship with a firm 
• find it harder to switch or get a better deal 

What is the Consumer Duty and how will it help remedy these practices? 

The Consumer Duty provides clear standards of consumer protection across financial services and requires firms to empower and protect consumers to achieve good customer outcomes. 

The new Consumer Duty has three key elements:  

1. The Consumer Principle - this reflects the overall standards of behaviour the FCA expects from firms. A very important point to note is that the Consumer Principle extends to firms that are involved in the manufacture or supply of products and services to retail clients, even if they do not have a direct relationship with the end customer. 

2. Cross-cutting Rules - these set out the key behaviours demanded by the Consumer Duty and make clear that the Consumer Principle requires firms to: 

• Take all reasonable steps to avoid causing foreseeable harm to customers 
• Take all reasonable steps to enable customers to pursue their financial objectives 
• Act in good faith

3. The Four Outcomes – these build on the Consumer Principle and the Cross-cutting Rules, representing, in the FCA’s eyes, the key elements of the firm-customer relationship: i.e. how a firm designs, sells and services its products and services, along with the key touch points along the ‘customer journey’. 

What are the four outcomes within the new Consumer Duty?

The Four Outcomes are: 

1. Communications Outcome – ‘communications equip consumers to make effective, timely and properly informed decisions about financial products and services.’  
   
   This reinforces and builds on the concepts contained in the first part of the existing Principle 7 (i.e. to ‘pay due regard to the information needs of its clients’) by introducing rules that require firms to communicate in a way that, in addition to being fair, clear and not misleading, is understandable and facilitates informed consumer decisions. 
   
   
2. Products and Services Outcome – ‘products and services are specifically designed to meet the needs of consumers, and sold to those whose needs they meet.’  
   
   This Outcome builds on the requirements set down in the Product Intervention and Product Governance Sourcebook (PROD) that currently only applies to certain sectors. Overarching requirements introduce that products and services (regardless of sector) sold to consumers have been designed to benefit them and perform as would reasonably be expected. 
   
   
3. Customer Service Outcome – ‘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.’ 
    
   Customer service should enable consumers to realise the benefits of the products and services they buy, ensuring that they are not hindered from taking timely action to manage their financial affairs and making use of products and services they have paid for. A consistent level of customer service should be provided that meets the needs of consumers throughout their relationship with the firm. 
   
   
4. Price and value Outcome – ‘the price of products and services represents fair value for consumers.’  
   
   This sets out clear and consistent expectations of how firms should assess whether the price of products and services offers fair value. Firms should be able to demonstrate that the benefits of their products and services are reasonable relative to their price and that they have put consumers at the heart of their business, assessing the price of products and services at design stage and then via ongoing monitoring. 

The FCA Consumer Duty 2022 – Final Thoughts 

When looking at which existing FCA concept the new Consumer Duty replaces, the FCA has actually positioned the new Consumer Duty as being a step forward in an evolutionary process. It is not a radical redesign of the requirements underpinning firm-customer relationships.  

In an FCA webinar, the Regulator was asked how the Consumer Duty differs to ‘Treating Customers Fairly’ (TCF) and its associated size outcomes. In its response, the FCA expressed the view that the Consumer Duty should be seen as, ‘a reset of the overarching regulatory framework’. 

Knowing the FCA, this means that they intend to use this Duty to enforce rules backing-up Principles and Guidance. It therefore goes without saying that non-compliance with Consumer Duty will leave firms open to regulatory censure, including enforcement investigations.  

Keeping up to date with the FCA Consumer Duty 

Hopefully this has given you a useful and clear understanding of the new Consumer Duty and how it plays its part in protecting your customers from harm. 

However, it is essential that all employees in sectors of Financial Services and their supply chains are aware of the regulations right now, and are ready to adapt to any future changes it brings in. 

Do your colleagues also need to be clear of what the new Consumer Duty is, how to adhere to it and the implications that non-compliance could have? 

In October 2022 we launched our new learning pathway on the FCA Consumer Duty rules and guidance. 

Our lead learning designer for Consumer Duty, James Clemence, describes the new course: 

“We’ve created a compelling five-part mini-series called THE SHIFT that immerses the learner in the practical elements of Consumer Duty. It reinforces why the Consumer Duty exists and aids the retention of knowledge through entertainment and storytelling.

Each episode of THE SHIFT sits alongside its corresponding learning content and is packaged into a learning pathway that includes an assessment.

Throughout the development of THE SHIFT and accompany e-learning we worked closely with our credible subject matter experts. This was to ensure the content is accurate and relevant.”