FCA to introduce new consumer duty to drive a fundamental shift in industry mindset
New plans from the Financial Conduct Authority (FCA) will ensure a higher and more consistent standard of consumer protection for users of financial services and help to stop harm before it happens.
The FCA is concerned that currently, financial services do not always work well for consumers. The new plans will fundamentally shift the mindset of firms.
Through its previous interventions, the FCA has seen practices by some firms that cause harm. These include firms presenting information in a way that exploits consumers’ behavioural biases, selling products or services that are not fit for purpose, or providing poor customer support.
The new consultation takes on board feedback and engagement with industry and consumer groups following initial proposals published in May. It sets out more developed proposals for new rules to tackle the causes of harmful practices. The new rules will raise industry standards by putting the emphasis on firms to get products and services right in the first place.
The new rules will require firms to focus on supporting and empowering their customers to make good financial decisions and avoiding foreseeable harm at every stage of the customer relationship. Firms will have to provide consumers with information they can understand, offer products and service that are fit for purpose and provide helpful customer service.
The FCA will use assertive supervision and its new data-led approach to intervene quickly when it identifies practices that do not deliver for consumers.
Alongside today’s consultation, the FCA has published draft guidance to help firms prepare before the introduction of the new Duty.
The consultation is open until 15 February 2022 and the FCA expects to confirm any final rules by the end of July 2022. Parliament has also called strongly for a change to the standard of protection for consumers, and the publication today meets the FCA’s obligations under the Financial Services Act 2021.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Making good financial decisions is vital to financial well-being and trust, but too often consumers are not given the information they need to make good decisions and are sold products or services that do not offer the benefits they might expect. We want to change that. We’ve been working to set a higher standard for firms, to put more of the onus on them to act in their customers’ interests and get their products and services right.
“The new duty will drive a change in culture at firms. We expect firms to step up and put consumers at the heart of what they do and we’ll be holding senior managers accountable if they do not. The duty will also help create an environment for healthy competition between firms, encouraging them to be innovative in developing products and services that meet consumer’s needs.”