New Anticipated Rules: FCA Consumer Duty
FCA have been consulting on the highly anticipated subject of Consumer Duty with the aim of underlying what it intends to achieve, namely a ‘significant shift’ in the culture and behaviour of firms with a firm needing to consider the new measures ‘at every stage of its processes and at every level of its organisational structure’.
It appears to be a realisation (and one which seems to be echoed by HMT) that the existing rulebook (and associated regulatory frameworks) are not fit for purpose as there have been significant changes in markets, technology and indeed attitudes towards effective regulation.
Consumer Duty derived from a mandate given under the Financial Services Act 2021.
Noticeable for:
- Potential impact of the new rules on firms
- The manner in which the FCA has sought to address concerns on the scope and application of the rules
- FCA’s stated approach to implementation.
Scope and Application
Clarification as to the first consultation and anticipated for the future rules. Highlights to note
- New ‘Consumer principle’, namely “to deliver good outcomes for retail clients” is considered to put the onus on firms to put customers in positions where they can act in their own interests.
- The clarification of how the consumer principle will apply in practice, namely the application of the ‘cross-cutting’ rules which are the FCA expectations of the firm’s conduct.
This centres around:- To act in good faith
- Avoid causing foreseeable harm to customers
- The enabling of customers pursuing their financial objectives.
It should be further noted that there is no requirement for firms to take ‘all reasonable steps’ in connection with the cross-cutting rules, which is an interesting development in itself.
- A detailed Appendix on non-handbook guidance points to guidance from the FCA as to the prerequisite expectations in complying with the Consumer Duty rules. This guidance includes:
- Consumers should still take responsibility for their decisions. Consumer Duty does not override this.
- The requirements are less onerous for simpler products with less scope for consumer harm
- The FCA does not anticipate making market interventions but may use their regulatory tools in certain prescribed circumstances.
- Firms with no direct engagement with retail customers can potentially be caught by the rules (i.e. if they are in a distribution chain which could potentially involve those in the wholesale market.
Implementation
The FCA have stated that implementation would be “iterative” in conjunction with providing more regular updates to firms on their experiences in the market and how this can add clarity for firms regarding The FCA expectations.
Summary
- Transparency on a significant addition to the rulebook
- There is now a requirement for firms to take a strong and active role in focusing on consumer interest as part of outcome-based regulation.
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Should you have any questions about the Consumer Duty or any other regulatory need please contact Xcina Consulting.
The consultation paper is available here