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A financial services consumer duty

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Striking a delicate balance

The financial services industry is a complex ecosystem.

There are numerous products and services on offer to a variety of retail consumers each with their own individual requirements. This activity takes place around an intricate reef of financial services firms, infrastructure and regulation.

Interventions sometimes are necessary, but they do affect the ecological balance – sometimes in unforeseen ways.

The FCA is imposing a consumer duty on firms dealing with retail consumers. It is looking to secure a “paradigm shift” towards more outcomes-focused regulation.

This may have far-reaching implications for consumers and firms – even those without a direct end-relationship with consumers.

The consumer duty will apply to all new and existing products and services from the end of July 2023, and to closed products and services from the end of July 2024. But firms must now act swiftly: the FCA expects firms’ boards to scrutinise, challenge and agree implementation plans by the end of October 2022.

Our London Financial Regulation and Contentious Regulation teams can help you to navigate these shifting waters.

Which way is the tide going?

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An overarching Consumer Principle

“A firm must act to deliver good outcomes for retail customers.”

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Cross-cutting rules

A firm must:

  • Act in good faith towards retail customers
  • Avoid foreseeable harm to retail customers; and
  • Enable and support retail customers to pursue their financial objectives.

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Outcomes

  • Products and services: there are requirements for approving, assessing, testing, deciding on distribution arrangements, and reviewing products and services, consistent with the consumer duty.
  • Price and value: products must provide fair value and their distribution arrangements must be consistent with this.
  • Communications must support customer understanding and a firm must test and monitor its communications in this regard.
  • A firm must provide an appropriate standard of customer support including so that it meets customers’ needs, the product can be used as anticipated and customers do not face unreasonable barriers.

island Seychelles

FCA Final rules and guidance: A new consumer duty

The Final FCA Consumer Duty Rules: key focus areas for asset managers

In microcosm

 

The second consultation

What changed between the first and second consultation, what questions the second consultation paper answers, and what steps you can take to prepare.

 

The first consultation

Dispute resolution partner Alison Wilson and financial regulation counsel Sara Cody discuss the FCA's recent consultation on the introduction of a "consumer duty" in financial services. We give an overview of the proposals and consider their key aspects, and give some thought to the practical implications for firms.

View our infographic on the proposals >

                                                                                                                                                                                                                 .

Fintechs & Challengers

Financial regulation senior associate Simon Treacy and managing associate Duncan Campbell discuss the implications for fintechs and challengers including around data, UX/UI, online/app channels, product complexities and fees, fair value and intermediation.

View our infographic on the implications for Fintechs & Challengers >

View our note on the implications for payments and e-money firms >

 

Insurers

View our note on the implications for insurers >

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The second consultation - implications for asset managers

Scope, application to asset managers throughout the distribution chain, and steps to take to prepare.

 

Consumer Redress

In this podcast episode we review the various mechanisms for consumers to obtain redress from financial services firms. We assess how the FCA’s proposal to extend the private right of action to cover Principle breaches (including any new Consumer Principle) might fit within the current framework. Crucially, will this achieve the FCA’s aim of securing a higher level of protection to consumers?

This episode features Lara Adamson (Associate, Dispute Resolution, London), Tom Rudrum (Associate, Dispute Resolution, London).

View our infographic outlining the current redress framework >

Asset Managers

Financial regulation counsel Sara Cody and Raza Naeem explore how the duty would apply to various firms in the distribution chain, go beyond existing TCF obligations, and have particular implications for customer communications and fair value.

View our note on the key focus areas for asset managers >

View our infographic on the key considerations for Asset Managers >

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Recent Publications

Lines of duty - what the FCA's Consumer Duty means for insurers

In proposing the Consumer Duty, the FCA pinpointed several issues relating to insurance, including the value of add-on products, price and value generally, and the loyalty penalty.

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UK: FCA consults on a new Consumer Duty

The FCA has published its second consultation paper (the "CP") on its proposed Consumer Duty (the “Duty”). This deals with responses to its initial consultation paper (published last May) and sets out in draft the detailed rules and guidance required to bring the Duty into force. The FCA has asked for responses to this second consultation by 15 February 2022, with the new rules due to be published and come into force on 31 July 2022.

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Why wait? Challenger banks prepare for the FCA’s Consumer Duty

In our discussions with clients, we know that many firms have already begun preparing for the Consumer Duty. Even though the FCA hasn’t finalised its rules yet, apparently that shouldn’t hold things up. The FCA is pushing firms to get a head-start now by, for example, looking for gaps between where you are now and where you’ll need to be under the new standards.

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With you at the reef-face

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