Calls for FCA clarity on Consumer Duty plans

8 December 2021

The financial services industry has called for greater clarity on the FCA’s Consumer Duty plans, warning that the current proposals may not be far reaching enough to remove bad firms from the market.

In a consultation paper, the FCA confirmed that it will forge ahead with plans to introduce the Consumer Duty, despite some firms expressing concern.

The FCA said the Consumer Duty will set a “higher standard of care” across all retail markets and ensure that firms consider the needs of their customers – including those deemed vulnerable – at every stage of the product or service lifecycle.

The proposals will require all firms to focus on good customer outcomes and whether those outcomes are met, assessing and evidencing the extent to which and how they are acting to deliver good outcomes.

The watchdog already requires businesses to “treat customers fairly” under current regulations, but in May it announced it planned to introduce a higher level of consumer protection after noting it had seen evidence of firms causing consumer harm, including providing information which is misleading or difficult to understand.

Firms have until April 2023 to implement the new proposals. However, experts have warned that a lack of clarity around a firm’s responsibilities could see a number of firms put at risk.

Tom Selby, head of retirement policy at AJ Bell, said: “Nobody could argue with the intent of these proposals which is to ensure good outcomes are at the heart of everything financial services firms do. Most ‘good’ firms should already be operating in this way, delivering products that customers value and constantly driving to enhance customer service.

“While the FCA is right to focus on boosting standards across the market, there also needs to be a credible enforcement threat against the minority of firms who consistently fail savers and investors.

“Given the new Consumer Duty is intended to replace existing FCA regulatory rules – most notably the treating customers fairly (TCF) principle – it would have made sense to ditch this altogether to give firms clarity about their responsibilities. The decision to retain this principle in the rulebook along the new Consumer Duty risks causing confusing layering of regulation which is far from ideal. If the FCA really wanted to signal a step change away from the previous regulatory model, why not discontinue the old rules together?”

“In order for these reforms to be worthwhile and impactful, the Consumer Duty needs to empower the FCA to finally drive the bad actors out of the market through effective supervision and enforcement.”

Tim Fassam, director of government policy and relations at PIMFA, also expressed disappointment at the lack of clarity, calling the proposals “somewhat theoretical and woolly.”

Fassam explained: “PIMFA retains concerns that the inherent subjectivity of the Consumer Duty will ultimately lead to confusion both for consumers and firms in terms of their expectations of a good outcome and without clarity on what the FCA’s expectations of the Financial Ombudsman Service are and how, or if, they will be codified, we would be concerned that this could lead to a significant rise in cases brought against firms through no fault of their own.”

PIMFA said that introducing new rules and regulations at “significant cost” to well-run firms will have little to no impact on those firms which do not already meet their obligations.

Fassam added: “In order for these reforms to be worthwhile and impactful, the Consumer Duty needs to empower the FCA to finally drive the bad actors out of the market through effective supervision and enforcement. It is unclear to us whether or not this will actually be the case.”

Meanwhile, Hargreaves Lansdown welcomed the announcement but said greater personalisation in communications would allow firms to enhance customer service and outcomes.

Anne Fairweather, head of government affairs and public policy, at Hargreaves Lansdown, commented: “An ambitious deadline of April 2023 has been set but paired with the iterative approach they’ve outlined, there should be time to iron out wrinkles in the framework.

“However, there’s a missed opportunity when considering the benefits of greater personalisation in communications. The power of data hasn’t yet been fully harnessed here – more could be done to support consumer understanding.

“The advice/ guidance boundary gets in the way of our ability to engage our clients using targeted messaging and guiding them to better outcomes. The Consumer Duty offers the opportunity to look beyond the current, rigid advice boundary and instead judge the value firms provide based on the outcome they drive for consumers. We’ll continue to make the case for the benefits that more personalised guidance could bring to the millions who are left unadvised in the current system.”

Professional Paraplanner