StepChange welcomed and strongly supports the Consumer Duty and the FCA's aim to drive a ‘paradigm shift’ in standards and prevent harms arising in financial services before they become entrenched.
StepChange recognises that the FCA handbook should be an evolving document, that rules and guidance can become outdated, and that enhanced regulation can benefit both consumers and firms
However, it is early in the life the of the Consumer Duty to consider changes based on the impact of the Duty. We would like to see the FCA complete and share findings from its post-implementation review to support an informed discussion about the future direction of the handbook.
The trade-off between high level regulatory principles and prescriptive requirements should not be over-simplified:
- Prescription is often essential to give substance and intention to high level principles;
- Prescription has been crucial to stop harm to financially vulnerable consumers where firms have exploited gaps or ambiguities in high level rules;
- Prescriptive rules are a basis for consumers (and advisers) to challenge firm practices, and make complaints;
- Prescription can alleviate burdens on firms that otherwise are uncertain as to the FCA’s expectations of standards; and
- Monitoring outcomes in the market is hard without reasonably specific expectations.
StepChange would have liked this call for evidence to be framed less narrowly to allow for a wider discussion about how the handbook can be enhanced rather than only simplified. The Consumer Duty embeds new principles and expectations, such as rules preventing firms from seeking to exploit consumer behavioural biases and vulnerabilities (PRIN 2A.2.3G), that do not yet carry over fully into the wider FCA handbook.
StepChange is particuarly concerned that the handbook does not do enough to prevent avoidable harmful debt journeys in consumer credit where an interaction between consumer vulnerability, revolving credit affordability assessments and automatic credit limit increases leads to poor outcomes. The Consumer Duty is highly relevant to this problem in its focus on outcomes and explicit requirements on firms to avoid knowingly exploiting consumer behavioural bias and vulnerability.
We would like the FCA to frame further review of its handbook in a wider context of enhancing its rules following the introduction of the Consumer Duty and:
- adopt the principle that any proposal for reform of its rulebook taken forward will not adversely affect consumer protection and should support improved consumer outcomes (or no change in outcomes where changes are proposed for technical reasons);
- ensure that no changes to rules are taken forward based on assumptions or speculation about the impact of the Consumer Duty where the evidence is unclear; and
- identify where the handbook can be enhanced and better aligned with the Consumer Duty, taking forward its programme prioritising areas that have the greatest potential to reduce preventable harm and/or improve consumer outcomes.