| Link(s): | Enforcement Watch 2 | FCA |
Context
The FCA has published ‘Enforcement Watch 2’ – the second edition of its Enforcement Watch newsletter covering insights and themes from its enforcement work. In this issue the FCA covers cover its recent approach to supervising and enforcing the Consumer Duty, highlighting how it is using the Duty to improve consumer outcomes through assertive supervision and its enforcement powers.
The FCA ‘steps in’ where it has concerns, and it calls this ‘assertive supervision’. Its ‘assertive’ options range from a conversation to the imposition of requirements. Where interventions are sufficient to address the harm, there may be no need for a formal enforcement investigation. To give a sense of the scale, in the last financial year, the FCA ‘intervened’ 382 times. In this edition, the FCA uses the Consumer Duty to help explain the threshold between assertive supervision and enforcement action.
Key points to note and next actions
- The FCA now has eleven investigations examining potential breaches of the Consumer Duty; it opened its first investigation in August 2024, and they have steadily increased since then.
- The FCA expects firms to ask themselves questions such as ‘Am I treating my customers as I would expect to be treated?’ or ‘Are my customers getting the expected outcomes from my products and services?’.
- The FCA states that interventions are often the starting point for firms to remedy their issues or exit the market if they cannot.
- Once it has intervened, the FCA continues its supervisory engagement with the firm, including ensuring that any deficiencies are remedied and that any restrictions put in place are complied with.
- Some of the recent ways the FCA has intervened and used the Consumer Duty or rules that work alongside it include reviewing insurance firms’ valuation of vehicles (with around 270,000 motorists expected to receive £200m in redress) and requiring a claims management company (CMC) to stop conducting regulated activities with immediate effect, due to concerns that the firm was not acting honestly and fairly towards its customers.
- The FCA opens investigations where its Supervision team has detected serious misconduct and the FCA considers an enforcement investigation necessary, proportionate, and likely to create impactful deterrence across the industry.
- In several of its eleven current enforcement investigation cases, the FCA is investigating whether consumers received fair value for a product or service in line with PRIN 2A (the Consumer Duty rules) and/or the PROD Rules, which work alongside the Consumer Duty.
- Three investigations have been opened into firms operating in the home and travel insurance sector, following a multi-firm review into home and travel insurance claims handling arrangements.
- One investigation is considering whether a firm in the travel insurance sector ‘hollowed out’ a product to reduce features of the policy. The supervisory intervention sought to address issues including customer understanding, fair value and how customer needs were accounted for. However, the FCA opened an enforcement investigation due to the serious nature of the issues and to enable a full examination of the practice of ‘hollowing out’. If the evidence supports a public outcome, this will deter misconduct and raise awareness of the issues.