FCA Demands Financial Firms Put Customers First in Latest Clampdown
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UK watchdog the Financial Conduct Authority (FCA) has announced new plans to put in place an improved and more consistent standard of consumer protection for users of financial services.
The FCA has come under criticism from certain quarters for taking its eye off the ball in a number of high-profile cases over the past couple of years, notably the Woodford funds debacle and the London Capital & Finance minibonds failure.
FCA: “Fundamentally shift the mindset”
In a press statement accompanying the announcement, the FCA said it wanted to “fundamentally shift the mindset of firms”.
The FCA says it continues to see practices by financial services firms that causes 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.”
A consultation period has been opened to gather feedback and engagement with industry and consumer groups, following on from its initial proposals published in May.
The FCA says it has developed new rules that “will raise industry standards by putting the emphasis on firms to get products and services right in the first place”.
Specifically the FCA states: “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.”
Taking a more proactive approach, the regulator aims to be more assertive in its supervision in what it describes as a “data-led approach” that will enable it to “intervene quickly when it identifies practices which 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Alongside today’s consultation, the FCA has published draft guidance to help firms prepare before the introduction of the new Duty.
What the new Consumer Duty rules say
The FCA thinks that consumers do not get the benefits of value they should expect or the information they need when they need it.
To fix this the new duty aims to ensure that companies get things right in the first instance and not after the fact. To that end companies must always put good consumer outcomes at the centre of their business and focus on the diverse needs of their customers at every stage.
The new consumer duty will be judged by how firms deliver better outcomes in four main areas:
- Consumers equipped to make effective decisions
- Products and services that give fair value
- Helpful customer service
- Products and services that are fit for purpose
The consultation is open until 15 February 2022 with final rules expected to be confirmed by the end of July 2022.
Putting the onus on firms to get products and services right, not consumers
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.
He added: “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.”
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