On 14th May 2021, the Financial Conduct Authority (“FCA”) published a consultation paper (CP21/13) setting out its proposals for a new consumer duty to be imposed on FCA regulated firms. This new duty will, if implemented, necessitate a big shake up in the way firms market, sell and price their financial retail products.
This new FCA initiative is in part an answer to widespread concerns over the “loyalty penalties” paid by longstanding customers of financial services companies highlighted in the Citizens Advice Super complaint to the Competition & Markets Authority in October 2018.
These proposed reforms will, in particular, have a widespread effect on banks, insurance companies and investment firms by imposing upon them a higher level of consumer protection in retail financial markets. Complying with this new duty is likely to require a significant shift in firm culture and behaviour. Firms will need to consistently focus on consumer outcomes, and put customers in a position where they can act and make decisions in their interests. Firms which fail to follow the new rules once in place will face FCA regulatory action.
In essence, the consumer duty would require firms to ask themselves what outcomes consumers should be able to expect from their products and services and put in place actions to achieve those goals rather than hinder them.
The Consultation also covers detailed arguments for and against a proposal to attach a private right of action to the new consumer duty, and in particular what the unintended consequences of this might be. The FCA has not decided its position on this point but invites comments from interested parties.
The reforms promise very wide ranging reforms but provide little detail at this stage with more detailed proposals expected in a second consultation in December this year. This is a “shot across the bows” for retail facing financial service companies to be more aligned with customer interests.
The new rules are due to be implemented by the end of July 2022.
