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FCA proposes stronger protection for consumers in financial markets by setting out plans for a Consumer Duty

Link(s):              FCA proposes stronger protection for consumers in financial markets
CP21/13: A new Consumer Duty
FCA CP21/13: A new Consumer Duty (fca.org.uk)

Context

The FCA has published a Consultation Paper on a new Consumer Duty, CP21/13: A new Consumer Duty. The FCA intends that the new Duty will set clearer and higher expectations for firms’ standards of care towards customers, which in turn will lead to a higher level of consumer protection in retail financial markets.

Key points to note

  • The deadline to reply to this consultation is 31st July; a second consultation will be published by 31st December 2021 and any new rules made by 31st July 2022.
  • The Consumer Duty would have 3 key elements. The Consumer Principle, the cross-cutting rules and the four outcomes.
  • The Consumer Principle includes proposed possible wordings such as “A firm must act to deliver good outcomes for retail” or “A firm must act in the best interests of retail clients”.
  • The cross-cutting rules would require firms to:
    • act in good faith
    • take all reasonable steps to avoid foreseeable harm to consumers
    • take all reasonable steps to enable consumers to pursue their financial objectives
  • The four outcomes would be:
    • Communication: communications equip consumers to make effective, timely and properly informed decisions about financial products and services.
    • Products and Services: products and services are specifically designed to meet the needs of consumers, and sold to those whose needs they meet.
    • Customer Service: customer service meets the needs of consumers, enabling them to realise the benefits of products and services and act in their interests without undue hindrance.
    • Price and Value: the price of products and services represents fair value for consumers.
  • This CP is pulling together lots of existing work by the FCA, such as that on vulnerable customers, and is applicable to all firms in their dealing with retail (including SME) customers.

Next actions

We will publish more information on this subject as and when it becomes available from the FCA. However, it should be noted that the general insurance sector is already ahead of some sectors on this issue as a result of certain provisions in the IDD, in ICOBS and in the proposed pricing remedies in relation to fair value and product governance.