Members Only | 22/07/21

In May, the Financial Conduct Authority (FCA) published its Consumer Duty Consultation (CP21/13), with an aim to set higher expectations for the standard of care that firms provide to consumers.

These proposals will significantly raise the expectations placed on firms in terms of monitoring and increasing standards to create better customer outcomes. Naturally, responsibility for ‘accountable individuals’ will increase too.

Below, we explore these expectations and look at how long firms have to prepare for the potential changes.

The FCA believes that consumers’ ability to make good decisions can be impacted by various factors, including their weaker bargaining position, irregularities of information, lack of understanding or behavioural biases. As we know, these factors can be intensified when customers are vulnerable.

As a result, the FCA is placing greater pressure on firms to introduce a higher level of consumer protection in retail financial markets, where they are often competing vigorously in the interests of consumers.

This new ‘Consumer Duty’ will hold firms accountable to a higher standard of care and will likely require a significant shift in terms of both culture and behaviour. However, for firms that get it right, this new requirement could be an opportunity to not only retain customers by providing good outcomes, but also to differentiate themselves from the competition on customer service.

According to the FCA, the Consumer Duty will 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

The Consumer Duty consists of three key elements; the consumer principle, the ‘cross-cutting rules’ and the ‘four outcomes’. Let’s dissect these further.

The consumer principle will set out a clear tone for firms and the language used will reflect the overall standards of behaviour the FCA will come to expect moving forwards. For example, the wording being consulted on is ‘A firm must act to deliver good outcomes for retail clients’ or ‘A firm must act in the best interests of retail clients’.

Developing on this, the ‘Cross-cutting Rules’ provide guidance on how businesses should be conducting themselves in practice. For example, the FCA expects firms to:

  1. Take all reasonable steps to avoid foreseeable harm to consumers
  2. Take all reasonable steps to enable consumers to pursue their financial objectives
  3. To act in good faith

These behaviours will be expected to be enshrined in all activities – from high-level strategic planning to individual customer interactions.

Lastly, the ‘Four outcomes’ is a suite of rules and guidance that set more detailed expectations for firms in relation to key elements in the firm-customer relationship – Communications, Products and Services, Customer Service, Price and Value.

The FCA is inviting feedback on their consultation paper by 31 July 2021. We would advise all firms to read the paper, regardless of whether they wish to feedback or not, as something that could impact governance, culture and process moving forwards. The FCA then expects to consult again on the proposed rule changes by 31 December 2021, with the final rules set to be introduced by 1 August 2022.

Richard Brown
Technical Advisor, Complaints