Your consumer needs you! We take look at the FCA Consultation on Consumer Duty

Given the responsibility for ensuring consumers are properly protected, the FCA are always working to improve standards in the financial services industry. With more financial decisions now in consumers’ hands, the FCA has decided that now is the time for an even higher standard of consumer protection. 

With that in mind on the FCA issued has issued its consultation paper (CP21/13) on a ‘Consumer Duty’ that would set clearer and higher expectations for firms’ standards of care towards consumers CP21/13: A new Consumer Duty | FCA. Having read the paper we can see that a higher level of consumer protection is needed, especially in retail financial markets, where firms are need to focus on the interests of consumers.  

So… we are all familiar with TCF (Treating Customers Fairly) which has been around for nearly two decades, so it isn’t a surprise to hear that the FCA is looking at a 2.0 of this initiative! For many firms, the coronavirus pandemic has brought in to the light failings which would require a significant shift in their culture and behaviour, especially where firms need to do more to consistently focus on consumer outcomes and put customers in a position where they can act and make decisions in their interests. 

Although it’s aimed at all consumers, the FCA has highlighted that those who are in vulnerable circumstances are at greater risk of harm. In their paper they highlight that ‘firms should take additional care to ensure vulnerable consumers receive outcomes that are as good as for other consumers’. This aligns with their recently published guidance on the fair treatment of vulnerable consumers Guidance for firms on the fair treatment of vulnerable customers | FCA. 

The FCA has set out the following as the scope of their proposals: 

  • products and services sold to ‘retail clients’
  • the inclusion of firms which 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.

The ‘Consumer Duty’ would require firms to: 

  • ask themselves what outcomes consumers should be able to expect from their products and services
  • act to enable rather than hinder these outcomes
  • assess the effectiveness of their actions.

In essence, the FCA wants to see firms putting themselves in their customers’ shoes, asking themselves questions such as ‘would I be happy to be treated in the way my firm treats its customers?’, or ‘would I recommend my firm’s products and services to my friends and family?’. 

The Consumer Duty would also add to the range of regulatory tools the FCA use to meet their strategic objective of making markets work well. It would help create an environment where consumers are better equipped to achieve good outcomes from financial services. To enable this, firms need to ensure that their products and services are fit for purpose and offer fair value, and that their communications and customer service enable consumers to make and act on well-informed decisions.

The FCA state that “We see many good practices by firms in retail sectors. There are many firms that are already delivering the right outcomes for consumers – good products and services at fair prices, supported by high standards of customer service and clear communications. However, we also encounter too many firms that are not adequately considering the needs of their customers, and not prioritising good consumer outcomes as an objective of their business activities.”  

Specifically, the FCA has called out practices that cause consumers harm, including:

  • firms providing information which is misleadingly presented or difficult for consumers to understand
  • products and services that are not fit for purpose in delivering the benefits that consumers reasonably expect or 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 not reasonable relative 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 information asymmetries, consumer inertia, behavioural biases or vulnerabilities.

In summary the FCA state “we want all firms to be putting consumers at the heart of their businesses, offering products and services that are fit for purpose and which they know represent fair value. We want financial services markets to be consistently effective in supporting the lives of consumers across the UK. Products, services, communications and engagement from firms should instil trust, enabling consumers to make effective and confident choices to advance their financial wellbeing and build positive futures for themselves and their families.” 

As always we look forward to reviewing how the sector responds – however anything that makes the market better for the consumer is a good thing.

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