The Financial Conduct Authority (FCA) is consulting on a new ‘Consumer Duty’ for regulated firms which it says will “set clearer and higher expectations for firms’ standards of care towards consumers”.
The Consultation follows the passage of the Financial Services Act 2021 through parliament which requires the FCA to look into the level of care financial services businesses offer their customers.
The FCA expects the new Consumer Duty to mark a ‘paradigm shift’ in the behaviour of financial services organisations. It will have three elements:
• The Consumer Principle which sets out the standards of behaviour expected from firms. The FCA is seeking feedback on two proposed wordings for the Principle; ‘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 to explain how the Consumer Principle will work in practice – this will require firms to act in good faith, take all reasonable steps to avoid foreseeable harm to customers and to enable customers to pursue their financial objectives.
• Rules and guidance which set out detailed expectations for firms’ conduct in relation to communications, products and services, customer service, price and value.
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: “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?’. We want consumers to be able to advance their financial wellbeing and build positive futures for themselves and their families.”
James Burgoyne, Divisional Director – Claims & Technical, Brunel Professions said: “At this stage the FCA has not decided whether consumers will have a private right of action against firms for breach of the proposed Consumer Principle, but if introduced this could lead to a significant shift in the way that disputes are settled. It was also notable that the proposals were not confined to firms directly dealing with the investor, but potentially extended to other entities higher up in the service chain. This is consistent with trends seen in recent decisions such as the Adams v Options case, where responsibility is not seen to lie solely with the adviser to the client.”
The current consultation runs to the end of July 2021, with a second consultation on draft rules expected later in the year. The FCA is planning for the new rules to be in force from 31 July 2022.
The FCA’s press release and consultation document are available on the regulator’s website. Articles about the new duty have been published by Freshfields Bruckhaus Deringer, Farrer & Co and FT Adviser.
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