Will the new Consumer Duty make any real difference?
I’ve been reading a lot about a new Consumer Duty recently. What exactly is it and will it make any difference to anything at all?
Tom Selby, AJ Bell Head of Retirement Policy says:
The Consumer Duty will set a new regulatory standard for the UK financial services sector, requiring firms to ‘act to deliver good outcomes for retail customers’.
This new ‘Consumer Principle’ will be underpinned by ‘Cross-cutting Rules’ setting out how the Financial Conduct Authority (FCA), one of the regulators of UK financial services, expect firms to behave.
Specifically, firms will be required to:
- Act in good faith towards retail customers;
- Avoid foreseeable harm to retail customers;
- Enable and support retail customers to pursue their financial objectives.
The overarching Consumer Principle and Cross-cutting Rules are intended to deliver ‘good outcomes’ in four areas:
- Products and services;
- Price and value;
- Consumer understanding;
- Consumer support.
Where the Consumer Duty applies, two existing FCA regulatory Principles will be disapplied:
- Principle 6 (‘A firm must pay due regard to the interests of its customers and treat them fairly’, often referred to simply as ‘treating customers fairly’ or ‘TCF’);
- Principle 7 (A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading).
The Consumer Duty will apply to all regulated retail financial services firms – from retail platforms to insurers and financial advisers.
Over time, the FCA expects retail customers to benefit through the provision of more appropriate products, improved service and, ultimately, better overall outcomes.
The Consumer Duty will be in place for firms selling products and services to new customers from July 2023. ‘Closed-book’ firms have been given an extra 12 months to comply with the new rules.
It’s worth pointing out that, while there is a requirement for firms to aim for good outcomes for customers, the FCA has explicitly stated this does not mean people should be protected from all harms.
It is likely any benefits from the Consumer Duty will develop in years rather than weeks and months.
The FCA has been clear it wants to see better value products, which could mean costs and charges – key components of value – will be pushed lower.
The regulator has also said it will not be acceptable for firms to have slick processes for customers wanting to buy a product or service but poor processes when they want to complain.
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