British reg’ plans to introduce ‘consumer duty’ to heighten retail investor protection
In pursuit of a higher level of consumer protection in retail financial markets, the FCA is consulting on its proposal to introduce a new ‘Consumer Duty’, a slew of measures setting the standard of care that financial firms must provide to its customers.
The British regulator stated that it has seen evidence of practices that cause harm, such as firms providing misleading information or complex data, hindering ability to access the financial product or service. In its 2020 survey, retail investors stated that they lacked confidence in the financial services industry. The FCA further added that the way financial services markets operate, consumers do not always get the products or services that match their needs. Additionally, weaker bargaining positions, asymmetry of information and lack of understanding can be an impediment to making good decisions.
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.” The consumer duty would require firms to ask themselves what outcomes consumers should be able to expect from their product or services. Firms should also act to enable rather than hinder these outcomes and access the effectiveness of their actions.
Three pillars of consumer protection:
The Consumer Duty will have three key elements. Firstly, a consumer principle that sets a clear tone and uses language that reflects the overall standards of behaviour the FCA expects from firms. Secondly, the element titled cross-cutting rules will develop and clarify the above principles’ expectations of firm conduct and set out its applications in practice. Under this, firms must act in good faith and take all reasonable steps to avoid foreseeable harm to consumers while enabling them to pursue their financial objectives. Thirdly, four outcomes have been set to define firm-customer relationship. This revolves around how firms design, sell and service their products and services and key contact points for customers, and describe the conditions necessary for customers to have fair value.
The proposed customer duty will apply not only to FCA-regulated financial firms but also enterprises involved in the manufacture or supply of products or services to retail clients, even if there is no direct relationship. The consultation is open to regulated firms (including electronic money institutions, payments services and registered account information service providers), consumer groups and individual customers, industry bodies and experts, policy makers and regulatory bodies, academics and think tanks. It is open till 31 July 2021 and can be responded through the online response form.
FCA expects to publish the second consultation by 31 December 2021, and will make any new rules by 31 July 2022.