The Financial Conduct Authority is introducing greater protections for retail clients by introducing a new consumer duty principle, aimed for firms providing and advising on products and services. In turn, this will increase the responsibility of firms to ensure consumers are provided with the products and services that are best fit for purpose and represent fair value.
Firms are already required to adhere to many FCA rules with these kinds of aims, but this new set of protections are being proposed as the regulator is still seeing evidence of firms misleading their customers. Many of whom, continue to hold very little confidence in the financial sector, wishing that the financial firms would be more honest and transparent in their dealings with them.
The new rules would make firms responsible for assessing and recording whether a product is understood by a client and is fair value for money. Firms must be able to demonstrate why they consider their products to be beneficial to the client.
The proposed new duty rules have three key elements:
- The Consumer Principle, which will reflect the overall standards of behaviour the FCA expects from firms. The wording being consulted on is: ‘a firm must act in the best interests of retail clients’ or ‘a firm must act to deliver good outcomes for retail clients’.
- Cross-cutting rules would require 3 key behaviours from firms, which include taking all reasonable steps to avoid foreseeable harm to customers, taking all reasonable steps to enable customers to pursue their financial objectives and acting in good faith.
- It will also be underpinned by a suite of rules and guidance that set more detailed expectations for firm conduct in relation to 4 specific outcomes – communications, products and services, customer service and price and value.
If introduced, the rules will apply to all regulated firms, including those that are involved in the manufacture or supply of products and services to retail clients, even if they do not have a direct relationship with the end customer.
Sheldon Mills, executive director of consumers and competition at the FCA, said:
‘The package of measures we are proposing will enhance our existing rules and is designed to tackle the harms we see in financial services markets, and their causes, as well as put consumers in a stronger position to make good decisions.’
‘We want firms to be putting themselves in the shoes of consumers and asking ‘would I be happy to be treated in the way I treat my customers?’.
The FCA is one of the most trusted regulatory authorities in the world and sets the bar very high for the firms regulated by it, so in order to maintain a position of approval in their eyes, firms will have to stay astute. These firms will have to dedicate a lot of time and money trying to adhere to all the strict regulations whilst remaining conscious of the latest changes.