FCA Consultation – A New Consumer Duty
On 7 December 2021 the Financial Conduct Authority (“FCA”) published a consultation paper which has proposed new rules for a new ‘Consumer Duty’ to bring about a “fairer, more consumer-focused and level playing field” in which firms are to place the interests of consumers at the centre of their businesses.
The FCA expects to publish the policy statement summarising responses and the new rules by 31 July 2022.
Rules and Guidance
The new rules are proposed to cover new Consumer Principle requiring firms to act to deliver “good outcomes for retail customers” and rules to require firms to:
- Act in good faith;
- Avoid foreseeable harm; and
- Enable and support retail customers to pursue their financial objectives.
The FCA expects the new rules to achieve 4 outcomes under the Customer Duty which represent key elements of the firm-consumer relationship to drive “good outcomes for customer” being:
- The product and services outcome – firms should not sell products or services unless they have been designed to meet the need, characteristics and objectives of their customer
- The price and fair value outcome – the price for products or services represent fair value to the firms customer (low price does not always reflect fair value)
- The consumer understanding outcome – the communication to support and enable consumers to make informed decisions will require the right information, being given at the right time and presented in an understandable way
- The consumer support outcome – customers receive the support they need, when they need it to make informed decisions
The Consumer Duty is proposed to be underpinned by the concept of reasonableness. This would mean the rules are interpreted in line with the standard that could reasonably be expected of a prudent firm:
- carrying on the same activity in relation to the same product or service; and
- with the necessary understanding of the needs and characteristics of its customers based on the needs and characteristics of an average customer.
At this time, the FCA is not proposing a private right of action for breach of any part of the Consumer Duty, although it was considered. The view taken is that allowing the industry to embed the Consumer Duty without the prospect of private action being brought is important to fully realising the benefits and cultural change that this aims to achieve.
The Customer Duty will not have retrospective effect and will not apply to past actions by firms. However, firms will need to review their products and services during the implementation period, which may mean implementing an update to the contractual terms and conditions of a product or service before it can be continue to be sold or renewed to a new or existing customer.
The full impact of the Consumer Duty is yet to be determined, with some time being given to allow for an implementation period to enable firms to change projects, train staff and update IT systems. The potential new duty was first considered in 2018, so it is beneficial to now have some clarity on the specific rules and guidance the FCA intends to implement.
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