The Financial Conduct Authority (FCA) proposes to create a new Consumer Duty. The Duty would seek to set higher expectations for the standard of care that firms provide to consumers.
The proposed Duty consists of:
- a new Consumer Principle;
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high-level cross-cutting rules articulating what the Principle should mean for firms;
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four outcomes reflecting key areas of the relationship between consumers and firms.
In the light of consumer harms arising from financial services, StepChange has made the case for a duty of care for financial services to embed a ‘fair by design’ standard and protect consumers from exploitation of behavioural bias, vulnerabilities or constrained choice. We welcome the proposals for a Consumer Duty, which will go some way to meeting those aims, and agree with the FCA’s assessment that the Duty has the potential to raise standards of consumer protection.
Our response highlights:
- The Consumer Duty should help bring the FCA’s consumer protection and competition objectives together and achieve positive culture change among financial services providers for the benefit of consumers.
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The clarity, urgency and ambition of the language used by the FCA to describe the intent of the Consumer Duty does not yet carry fully into the language and design of the Duty itself, which is arguably not sufficiently different to the present Treating Customer Fairly (TCF) framework. We would like to see a strong tone-setting message that firms should not seek to profit from exploiting information asymmetries, consumer inertia, behavioural biases or vulnerabilities.
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We have some concerns that the reasonableness test set out in the consultation paper, as currently framed, risks anchoring the Consumer Duty too closely to the existing consumer protection ‘have regards’ and an emphasis on process rather than outcomes, an approach which the FCA rightly highlights has limited the effectiveness of the TCF framework.
- There is some disconnect between the high-level Consumer Principle and the four ‘low level’ outcomes. The outcomes (excluding price and fair value) look similar to the existing TCF outcomes, raising the question as to how the FCA will ensure that firms do not continue to focus on process (compliance) rather than good customer outcomes.
- There are also areas of firm activity that fall within scope of the Duty but do not appear to fall fully or clearly within the scope of the outcomes. Notably, supporting customers in financial difficulty is not highlighted as an area of focus. Further development of the outcome areas, and clarification of their relationship to the high-level Duty, would be welcome.
- The Consumer Duty will carry more force if supported by amendments to the Financial Services and Markets (FSMA) Act 2000 when the opportunity arises. Specifically, this would allow:
- Updating and alignment of the section 1c consumer protection objective and 2e competition objective ‘have regards’ with the Consumer Duty.
- A new financial inclusion objective, reflecting aspirations commonly articulated by government, the FCA and others to find solutions to financial exclusion issues.
- Clarification of roles and responsibilities at the interface of regulatory and social policy so that government and the regulator are better able to act in concert to prevent harms and promote financial inclusion.
- ‘Hardwiring’ at the legislative level of the consumer voice into FCA policy making.
You can download our full response here.