The Financial Conduct Authority (FCA) is giving firms 12 months to implement the new rules from the Consumer Duty as the regulator ramps up consumer protection.
The Consumer Duty will set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first.
The Duty is made up of an overarching principle and new rules firms will have to follow. It will mean that consumers should receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it.
Clarity on the FCA’s expectations and firms focusing on what their customers need should lead to more flexibility for firms to compete and innovate in the interests of consumers.
The Duty forms part of the FCA’s transformation to becoming a more assertive and data-led regulator.
With firms assessing how they’re meeting their customers’ needs, the FCA will be able to quickly identify practices that don’t deliver the right outcomes for consumers and take action before practices become entrenched as market norms.
In relation to mortgage brokers the rules concern both the roles and responsibilities of manufacturers and distributors of products.
Under the rules the regulator expects mortgage professionals to consider ways to prevent harm for existing customers, for example by making changes to the mortgage agreements.
Mortgage brokers, mortgage administration or debt collection firms who have direct contact with customers will all be covered by the new Duty.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “The current economic climate means it’s more important than ever that consumers are able to make good financial decisions.
“The financial services industry needs to give people the support and information they need and put their customers first.
“The Consumer Duty will lead to a major shift in financial services and will promote competition and growth based on high standards.
“As the Duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.”
The Duty will include requirements for firms to:
- end rip-off charges and fees
- make it as easy to switch or cancel products as it was to take them out in the first place
- provide helpful and accessible customer support, not making people wait so long for an answer that they give up
- provide timely and clear information that people can understand about products and services so consumers can make good financial decisions, rather than burying key information in lengthy terms and conditions that few have the time to read
- provide products and services that are right for their customers
- focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction
The FCA is giving firms 12 months to implement the new rules for all new and existing products and services that are currently on sale.
The rules will be extended to closed book products 12 months later, to give firms more time to bring these older products, that are no longer on sale, up to the new standards.
The policy statement and guidance will be published on the FCA website later today (Wednesday 27th July) at 7am.
Reaction
Chris Hill, CEO, Hargreaves Lansdown:
“We welcome the FCA’s intention to use the consumer duty to create more flexibility for firms to compete and innovate in the interests of consumers. This is exactly what our digital transformation at HL is all about. We are investing in more tools and nudges to drive better client outcomes.
With the consumer duty in place, we are keen to see the FCA revise its own rule book, to remove regulations which hinder innovation in the interests of consumers. There is scope for us to personalise guidance to clients to a greater extent, to drive engagement and better outcomes. We look forward to working with the FCA on this agenda as we embed the consumer duty at HL.”
Tom Selby, head of retirement policy at AJ Bell:
“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.”
Mark Spiers, partner at Bovill:
“The publication today of the FCA’s Policy Statement on Consumer Duty is the culmination of a multi-year effort by the regulator to put achieving fair outcomes for the consumer front and centre of financial regulation.
“However, the assumption that all firms have been working on Consumer Duty since it was first proposed is wrong. Whilst many firms have put fair treatment of consumers at the centre of their business for some time, this regulation requires a change of emphasis to look at fair outcomes.
“This change has been difficult for many smaller and medium-sized firms to interpret and implement to date, as a result some have been avoiding what they see as a difficult task and anticipating or hoping for a longer implementation timeline.
“In addition, in order for the new rules to be effective, good governance and controls will be required backed by deterrence based on a credible threat of punishment. The FCA have said they will draw on the Senior Managers Certification Regime (SMCR) to help deliver the Consumer Duty agenda, but research from Bovill has called into question the efficacy of this regime, which has resulted in only two penalties in six years.[1] The FCA will need to use both SMCR and Consumer Duty together to ensure that senior managers ensure their firms deliver against this new regulatory package.
“This is a far-reaching regulatory package, that brings this sort of consumer outcome focus to some firms in the value chain for the first time. Firms across the buy-side investments, consumer credit, lending, insurance and payments sectors need to consider it seriously.
“It is vital for firms to map it across every element of their business model to understand where the impact for them might be. For many firms it will be an evolution of the work they already do to treat their customers fairly, but some firms will have significant work to do to understand what achieving consistently fair consumer outcomes looks like for them and implement a robust set of systems and controls to achieve them over time.”
Karl Dines, head of business consultancy at SimplyBiz:
Just like Christmas, it’s felt like the Consumer Duty would never actually arrive – but it’s here, and the FCA has even outperformed Santa by making its delivery a few days early! But, is the Consumer Duty a shiny new BMX, or a lump of coal? To be honest – it’s pretty much what we expected, and what the FCA told us we were getting, so close are the final rules to those we saw in May’s feedback to the Consultation Paper.
“It’s a biggie; the rules will affect discretionary wealth managers, investment advisers, mortgage brokers, insurance brokers, and consumer credit firms, so will require both attention and action from all.
Whilst fully digesting the 160 pages of the Policy Statement will take a few weeks, we can see that the main ethos of the regulation, which affects all advisers, – ‘to treat clients as you would like to be treated’ – remains at its core.
“The fair treatment of clients with vulnerable characteristics, safeguarding of consumer rights, and delivery of the most suitable solution for a client’s needs and circumstances are already observed by the vast majority of advisers – the additional work lies in the creation of processes to meet, and document that you are meeting, the requirements of the new ‘Consumer Principle’, and its keen focus on demonstrable client support, understanding, and value.
Whilst the regulator has made it clear throughout the consultation and policy process that common-sense ‘reasonableness’ should be employed when firms design their Consumer Duty proposition, the final rules show that additional work will be needed from all advisers to ensure that they are all set to fulfil the new requirements.
“The regulator has extended the implementation period of the new rules to a year meaning that, for the majority of firms, fulfilling the requirements of the Consumer Duty will be achievable, but some hard graft will be required.
Warren Vickers, managing director of Tenet Compliance Services:
“The new Consumer Duty standards are a step change for the financial advice sector – there hasn’t been a comparable shake up since RDR. This should benefit all stakeholders in the long run and help advisers to demonstrate how they’re delivering good value and service for their clients. However, while the three-month extension is welcome, advisers are still faced with a tight deadline for implementation and mustn’t stray into complacency with their planning.
“This is a new and high bar to clear for evidencing value and before the benefits are felt there is the unavoidable pain of change to go through. Financial advisers need to ensure they have all the resources in place to meet the rising standards, which the FCA estimates might cost up to £25k for small businesses and could also run much higher for larger firms.
“We’ve already been working with advisers behind the scenes to relieve some of the burden and help them get ready, and with the final guidance published today we’re encouraging advisers to seize the day. One of the best ways to get a jump start is by completing a gap analysis as soon as possible, and exploring how innovative technology solutions can help bridge that gap, and we’ll be working side by side to support advisers with this along the way.”
