FCA plans new Consumer Duty to boost protection in retail financial markets

The UK Financial Conduct Authority (FCA) today unveiled plans for a new Consumer Duty in order to see a higher level of consumer protection in retail financial markets.

The regulator is aware of a range of good practice by firms in retail sectors with firms innovating to meet the needs of consumers. However, it also sees that firms are not consistently and sufficiently prioritising good consumer outcomes. This causes consumer harm and erodes consumer trust.

In the FCA 2020 Financial Lives survey, only 10% of consumers ‘strongly agreed’ that they had confidence in the UK financial services industry, with a further 32% ‘slightly agreeing’. Only 35% of respondents agreed that firms are honest and transparent in their dealings with them.

The Consumer Duty will explicitly set a higher standard of care across all retail markets, informed by the FCA’s work on behavioural biases and vulnerability. It will also extend rules focused on product governance and fair value, which already exist in certain sectors, across all sectors.

Further, the new duty will focus on matters of market practice (eg sludge practice) that interfere in consumer decision making and, by doing so, cause harm.

The Consumer Duty aims to ensure firms consider the needs of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the product or service lifecycle.

It will require all firms to focus on good customer outcomes and whether those outcomes are met.

Under the Consumer Duty, firms will be required to sell products and services that meet the needs of customers and which are fair value.

In addition, the Consumer Duty draws on the FCA’s fair value framework and applies those fair values rules that already exist in certain sectors to other sectors. It aims to tackle factors that can result in unfair or poor value, such as unsuitable features that can lead to foreseeable harm or frustrate the customer’s use of the product, or poor communications and consumer support.

The FCA accepts comments on its Consultation Paper by 15 February 2022.

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