FCA Consumer Duty reforms lay down the gauntlet to financial services firms…but ‘closed-book’ providers won’t need to comply until 2024

by | Jul 27, 2022

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  • Firms will have 12 months to implement new ‘Consumer Duty’ rules for products and services that are currently on sale, the FCA has confirmed.
  • However, ‘closed-book’ providers have been given until 31 July 2024 to bring older products that are no longer for sale up to the new, higher regulatory standard.
  • The Consumer Duty will require all retail financial services firms to aim to achieve ‘good outcomes’ for their customers.
  • The Duty will effectively replace the requirement to ‘treat customers fairly’ and communicate in a way that is ‘clear, fair and not misleading’.
  • The new rules are intended ensure good customer outcomes are at the heart of all parts of financial services, specifically in relation to:
    • Products and services
    • Price and value
    • Consumer understanding
    • Consumer support

Tom Selby, head of retirement policy at AJ Bell, comments: “The Consumer Duty is effectively a gauntlet laid at the feet of all UK financial services firms by the FCA.

“The regulator has been absolutely crystal clear that the new rules are intended as a step up in standards, with firms required to aim for ‘good outcomes’ for customers when designing products, setting prices, providing support and communicating.

“While firms offering products and services that are still for sale will be given 12 months to implement the requirements, so-called ‘closed-book’ firms no longer selling new products have been given until 2024 to comply.

“The FCA will likely receive some flak for this decision, especially given much of the worst detriment in terms of things like high charges and poor service often sit squarely with firms no longer actively trying to win new business.

“The regulator might argue closed-book providers need more time to update antiquated systems, but that will come as little comfort to customers stuck in poor value products and receiving unsatisfactory service.”

Consumer Duty – need for a credible enforcement threat

“One of the big challenges facing the FCA is ensuring there is a credible threat of enforcement for firms that fail to meet its expectations.

“The inconvenient truth is that ‘good’ firms are likely to already be meeting much of the regulator’s new expectations, while ‘bad’ firms are often flouting the existing rules.

“To raise the laggards up to the standard of ‘good’ firms, the FCA will need to demonstrate ‘bad’ firms will be punished.

“The Financial Ombudsman Service (FOS) will also play a critical role in interpreting the Consumer Duty on the ground.

“There is a very real risk that spurious complaints will be made against firms by Claims Management Companies (CMCs) looking to take advantage of the new standard.

“The regulator will need to watch CMCs like a hawk and come down hard on any dodgy behaviour.”

Advice/guidance boundary

“More broadly, the Consumer Duty brings to a head the arguments around the boundary between guidance and advice.

“If the full benefits of the Duty are to be realised, the FCA – or possibly the Government via legislative reform – will need to provide clarity on this boundary.

“Without such clarity, there is a risk customers will receive sub-optimal levels of support when making often complex financial decisions.”

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