The Financial Conduct Authority (FCA) has confirmed its plans to bring in a new Consumer Duty, which will “fundamentally improve” how firms serve consumers. It 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.
The FCA say that clarity on their 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 aim to become 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.
Sheldon Mills, Executive Director of Consumers and Competition, 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.
Managing Director of HBB Solutions, Chris Hodgkinson, described the new rules as an “assault on the property industry”. He said:
“The new proposed Consumer Duty rules will be seen by many as overreach and the latest assault on the property industry by legislators that fails to take account of a consumer’s personal responsibility.
Instead, they’re putting the responsibility for almost any eventuality and outcome at the feet of businesses, rather than a shared responsibility with a consumer that surely has their own eyes and ears to sniff out the difference between good and bad.
Of course, any financial services business worth their salt will already be providing appropriate advice based on customer need and their ability to pay and will endeavour to support their client properly and professionally. As such, those lenders and brokers that genuinely act in the best interests of the consumer and have built positive reputations based upon authenticity, integrity and empathy, surely have nothing to fear?”
Chris Sykes, Technical Director at Private Finance, seemed optimistic about the changes and their potential impact on fall throughs, though felt it would have no effect on issues such as downvaluations and expiring mortgage offers which continue to plague transactions:
“[This sounds] like many principles that reputable firms should already have at the core of their business anyway, so perhaps it’ll do some good to improve firms that do not.
I’d say it could have an affect on fall through rates of transactions. Perhaps if people are going into transactions better understanding the products they are taking the costings around them then things are less likely to fall through and perhaps at each link of a chain if this is the case then transactions can move forward quicker.”
