Written by Tom Selby, head of retirement policy at AJ Bell
It is hard to overstate the potential significance of the FCA’s Consumer Duty reforms for the entire retail financial services industry.
The new Duty will require all retail financial services firms to aim to achieve ‘good outcomes’ for customers, effectively replacing the existing requirements to ‘treat customers fairly’ and communicate in ways that are ‘clear, fair and not misleading’.
The introduction of the Duty – and the shift to outcomes-focused regulation – represents arguably the biggest domestic regulatory overhaul in almost a decade and will fundamentally reshape financial services in the UK. The FCA explicitly says the Duty represents a higher regulatory standard than the current regime, with a renewed focus on ensuring all sectors adopt a laser-like focus to achieving good consumer outcomes.
If the Duty works as envisaged, it has the potential to lead to better informed consumers buying products and solutions, and receiving communications that are more appropriate for their needs and circumstances.
However, for this to be achieved the FCA will need to demonstrate a credible threat of enforcement against those firms who already flout its existing rules. It will also need to keep a close watch on claims management companies, some of whom will inevitably attempt to use the new requirement to chase spurious claims against firms.
An opportunity to finally address the UK’s advice gap
In addition, the Consumer Duty provides a platform for the FCA and the Government to finally address the thorny issue of the blurred line between guidance and financial advice.
It is clear the regulator wants savers and investors to receive more support when making decisions about their money, with the FCA making it crystal clear that achieving ‘good outcomes’ is intended as a step-up in its customer support expectations.
Firms stand ready to offer this extra support – and in the process help fill the so-called ‘advice gap’ – but the lack of clarity over when guidance ends and advice begins is holding the market back.
Unless this is rectified, firms will continue to be limited in their communications with millions of customers. For those who don’t take regulated advice – either through choice or lack of access – this means they will be more at risk of making sub-optimal decisions, undermining one of the central aims of the Consumer Duty.