On the 14th of May 2021 the Financial Conduct Authority (FCA) proposed a new Consumer Duty. Could this work to ensure that regulated businesses across the UK are always acting in the best interests of their consumers?
So, what does the new Consumer Duty mean to you and your businesses?
As we know the FCA states that it wants the Consumer Principle to set a higher standard, for a firm to ‘pay due regard to the interests of its customers and treat them fairly’.
Could this be a good outcome?
They have given two options:
Option 1: ‘A firm must act to deliver good outcomes for retail clients’.
Option 2: ‘A firm must act in the best interests of retail clients’.
These options may seem familiar to you, the ‘best interests’ concept in option 2 is one that already exists in the FCA’s rules in relation to a number of products. Option 1 aligns with the focus on outcomes and the impact of firms’ actions on consumers. It is specifically stated that, due to the current handbook, there would not be an intention for this Option 2 to give rise to a fiduciary relationship.
The cross-cutting rules would require three key behaviours from firms:
- 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
The Four Outcomes
The FCA proposes to set expectations for each of Four Outcomes (Communications; Products and Services; Customer Service; and Price and Value, which are said to represent the key elements of the firm-customer relationship). These expectations are intended to build on the Consumer Principle and the Cross‑cutting Rules.
For many firms, these changes will require ‘a significant shift in culture and behaviour, where they consistently focus on consumer outcomes, and put customers in a position where they can act and make decisions in their interests.’ Stated in the handbook.
Ready to dive into this further? You can read more on this here: https://www.thecompliancecompany.co.uk/what-we-know-about-the-fcas-proposed-new-consumer-duty/
Then we have the next big question… “what does the new consumer duty mean for your customers”?
One quarter of respondents within a recent FCA survey expressed a lack in confidence in the financial services industry and only 35% agreed that firms are honest and transparent in their dealings with them.
Sheldon Mills, executive director of consumers and competition at the FCA, said: ‘The package of measures we are proposing will enhance our existing rules and is designed to tackle the harms we see in financial services markets, and their causes, as well as put consumers in a stronger position to make good decisions.
‘We want firms to be putting themselves in the shoes of consumers and asking, ‘would I be happy to be treated in the way I treat my customers?’. We want consumers to be able to advance their financial wellbeing and build positive futures for themselves and their families.’
In conclusion, to customers this may be the beginning of a paradigm shift within the attitudes towards the care of custom.
What may or may not shock you is we are not alone in this, it is not just the UK that’s seeing changes.
We understand that the EU has commenced a consultation into whether the application of Mifid II is successful enough. In addition, the US regulator, the Securities & Exchange Commission, added ‘best interests’ into regulations last summer for US broker dealers, closing the gap within the fiduciary standard already required of registered investment advisers.
Therefore globally, consumer protection standards are improving, with better conditions as economies seek to rebuild after the pandemic.
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