FCA Takes Next Step Towards a UK Consumer DutyJanuary 2, 2022
In December 2021, the UK Financial Conduct Authority (FCA) published a consultation to set a higher standard of consumer protection in retail financial markets, an endeavor which began in July 2018. At the core of the proposed new rules is a new Principle for Businesses: “A firm must act to deliver good outcomes for retail customers”. This is to be supported by detailed rules and guidance, also under consultation. The scope of these proposed provisions is wide-reaching, covering both those who deal directly with retail customers and those who form part of relevant supply chains. Importantly, the FCA has decided that (at least for now) it will not allow customers to bring a civil claim for an alleged breach of these rules. However, noncompliance with the rules would risk regulatory action. The FCA expects to make any new rules by 31 July 2022, which likely would come into force in 2023.
The FCA has published a second consultation in respect of its proposed Consumer Duty (the Duty), refining the original proposals. The Duty is in fact a range of proposed provisions whose purpose is to ensure that those regulated businesses dealing with retail customers put those individuals and businesses and their interests at the heaart of all decision making, from product design through to sales and administration. This is an important and flagship reform for the FCA; it sits alongside the guidance that the FCA has already issued about how regulated businesses should treat vulnerable customers. The FCA intends the Duty once implemented to be relevant throughout the “regulatory lifecycle”, including in respect of Authorisations, Supervision and Enforcement. The COVID-19 pandemic and the damage it has caused to the financial health of parts of the population make this work feel timely even if in truth much of it has been in the pipeline for some time.
There has already been a considerable amount of discussion and debate around the Duty. In this GT Alert we focus on seven key takeaways for regulated businesses.
1. As currently drafted, to whom does the Duty apply?
As it currently stands, the Duty would apply to all FCA-authorised firms, payments services firms and issuers of electronic money. It would apply both to regulated activity and to any non-regulated activities ancillary to regulated activities. For example, product design.
Importantly, regulated businesses would be captured by the Duty even if they do not have a direct relationship with the end client(s). The FCA proposes that the Duty apply to all such businesses with a material influence over the features, communications or distribution of a product or service in the “supply chain” to retail financial consumers.
2. Whom would the Duty protect?
The Duty is intended to benefit retail customers (therefore excluding professional clients and eligible…