FCA PS22/9: A new Consumer Duty
Following a Consultation period which ended in February 2022 the Financial Conduct Authority has set out “final rules and guidance for a new Consumer Duty that will set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first”.
The FCA was required under the Financial Services Act 2021 to make any final rules for the Duty by 31 July 2022.
The new Consumer Duty is set out in a policy statement.
“Setting higher standards and putting customer’s needs first is central to the FCA’s strategy”.
This is particularly important in the context of the cost of living crisis as consumers face increasing pressures.
The FCA suggests that there is a perception that consumers can be faced with information presented in a way that is “misleading or difficult to understand” and that “some firms sell products or services to consumers that are not right for them or do not offer fair value”.
The FCA through its regulatory and supervisory tools will say it has addressed “poor practices” with the new Consumer Duty.
The new Consumer Duty affects:
- regulated firms, including those in the e‑money and payments sector
- consumer organisations and individual consumers
- industry groups/trade bodies
- policy makers and regulatory bodies
- industry experts and commentators
- academics and think tanks
The FCA is seeking four outcomes from the Duty:
- fair value: consumers receive fair prices and quality
- suitability and treatment: consumers receive suitable products and services and receive good treatment
- confidence: consumers have strong confidence and levels of participation in markets
- access: diverse consumer needs are met
The ethos of the Duty is:
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.
Implementation of the new Consumer Duty
Following feedback arising in the consultation, there will be a phased implementation of the Duty. Firms will need to apply the Duty to new and existing products and services that are open for sale (or renewal), from 31 July 2023. Firms will have until 31 July 2024 to apply the Duty to products and services in closed books.
The Duty will not be retrospective.
The FCA expects to work closely with the Ombudsman Service and work on the basis that firms should be held accountable against the standards that prevailed at the time the problem arose.
Scope of the Duty
The FCA proposes to apply the Duty to all firms in the distribution chain for products and services sold to customers.
A wider Duty applies to all firms in the distribution chain that can influence material aspects of the design, target market or performance of a retail financial services product or service, even where they did not have a direct relationship with the retail customer, such as;
- the design or operation of retail products or services, including their price and value;
- the distribution of retail products or services;
- preparing and approving communications that are to be issued to retail customers; or,
- engaging in customer support for retail customers.
The Duty will also apply to unregulated activities ancillary to regulated activities.
The Duty will apply to Gibraltar based firms selling into the UK.
The Duty will not apply to Bounce Back loans which are not a regulated activity.
Steps to be taken by firms falling under the scope of the new Consumer Duty:
- for new and existing products or services that are open to sale or renewal the rules come into force on 31 July 2023.
- for closed products or services the rules come into force on 31 July 2024.
The FCA has published final guidance to provide firms with the information they need to implement the Duty https://www.fca.org.uk/publication/finalised-guidance/fg22-5.pdf
What does this mean for our clients?
The Consumer Duty imposes a higher threshold of customer service and care by lenders and firms facilitating the industry. The Duty requires firms to “act to deliver good outcomes for retail customers”.
The Duty is limited to “consumers / retail customers”, not business to business transactions.
Firms will have to collate data by way of MI and will need to avoid foreseeable harm.
Firms will have to provide training to the managers and all staff as to obligations arising from the Duty and ensure that the Duty is considered in their documentation, governance and procedures.
The FCA will take an assertive approach to firms’ implementation of the new rules, particularly the customer outcomes.
Training, collection and interpretation of MI and implementation of the Duty into new products will be the key to firms successfully transitioning into the era the new Duty creates.