The Financial Conduct Authority (FCA) has released its long-awaited policy statement and official guidance on plans to bring in a new Consumer Duty, aimed at making fundamental improvements to the way consumers are treated. It will set higher and clearer standards of consumer protection across financial services and includes a new Consumer Principle that “a firm must act to deliver good outcomes for retail customers”.
Following concerns raised during the consultation period, the deadline for implementing the new principle and rules has been extended by three months, and finance providers and brokers now have a year in which to implement any changes. A 120-page document offers guidance on achieving “good outcomes”, which are not directly specified but must meet certain criteria.
The Duty is made up of an overarching principle and new rules firms will have to follow. It emphasises the need for firms to provide consumers with communications they can understand, and products and services that meet their needs and offer fair value, as well as ensuring they get the customer support they need, when they need it.
Clarity on the FCA's expectations and firms focusing on what their customers need should lead to more flexibility for firms to compete and innovate in the interests of consumers, the regulator said.
Sheldon Mills, FCA executive director of consumers and competition, stated: “The current economic climate means it’s more important than ever that consumers are able to make good financial decisions. The financial services industry needs to give people the support and information they need and put their customers first.
“The Consumer Duty will lead to a major shift in financial services and will promote competition and growth based on high standards. As the Duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.”
The Duty will include requirements for firms to:
- end rip-off charges and fees
- make it as easy to switch or cancel products as it was to take them out in the first place
- provide helpful and accessible customer support, not making people wait so long for an answer that they give up
- provide timely and clear information that people can understand about products and services so consumers can make good financial decisions, rather than burying key information in lengthy terms and conditions that few have the time to read
- provide products and services that are right for their customers
- focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction
The FCA policy introduces a new Consumer Principle that requires firms to act to deliver good outcomes for retail customers, with an emphasis on taking proactive action to ensure this happens.
The policy outlines cross-cutting rules designed to provide greater clarity on its expectations under the new Principle, and to help firms interpret the four outcomes it wants to see under the Consumer Duty.
The cross-cutting rules require firms to:
- act in good faith
- avoid causing foreseeable harm
- enable and support retail customers to pursue their financial objectives
The FCA has outlined the four outcomes it wants to see under the Consumer Duty and which it says represent key elements of the firm-consumer relationship which are instrumental in helping to drive good outcomes for customers.
These outcomes relate to:
- products and services
- price and value
- consumer understanding
- consumer support
The new rules require firms to consider the needs, characteristics and objectives of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the customer journey. As well as acting to deliver good customer outcomes, firms will need to understand and evidence whether those outcomes are being met.
The FCA says it will measure the success of the new proposals by monitoring key outcomes for consumers, such as Financial Ombudsman Service final decisions on complaints about fees or charges or inappropriate product or service sales. Firms will also be asked to provide management information, including complaints data. The regulator indicated it plans to develop further metrics to assess the impact at the level of particular sectors and portfolios, and will ask stakeholders for views and suggestions on potential approaches.
The FCA is giving firms 12 months to implement the new rules for all new and existing products and services that are currently open to sale or renewal, with a deadline of 31 July 2023. For closed products or services, the rules come into force on 31 July 2024.
The FCA’s Consumer Duty policy statement is here.
Final non-Handbook Guidance for firms on the Consumer Duty is here.
Asset Finance Connect will be organising an online event on Consumer Duty to discuss the guidance.
Finance providers who would like to participate should write to email@example.com