The FCA consulted on final rules and guidance on the new Consumer Duty. We welcome and strongly support the new Consumer Duty and believe the changes outlined by the FCA will bring positive culture and practice change among financial services providers for the benefit of consumers.
We particularly welcome the clarity that the new Consumer Principle ‘imposes a higher and more exacting standard of conduct’ than the existing framework and the embedding of vulnerability and behavioural bias in the proposed rules and guidance.
The FCA has noted that in the past it has been forced to intervene because practices harmful to consumers become entrenched as market norms. The Duty has the potential to address this problem but to do so it must both set high standards and be matched with a more effective approach to FCA authorisation, monitoring, supervision and enforcement; otherwise, the detriment-intervention cycle the FCA is seeking to end may continue.
We would like to see the FCA match finalised rules and guidance with a set of concrete commitments to make sure of the success of the Duty. This should include:
- Sector statements setting out the FCA’s view of key areas of risk to consumers, supported by a sector by sector programme of engagement and guidance to set a clear direction of travel and support implementation among firms.
- Responding to the Woolard Review recommendation that the FCA articulate clear outcomes for the credit market and ‘set out clearly what the market should be achieving at each stage of the consumer journey and lifecycle of a product’. As part of this, the FCA should consider developing sector-specific metrics along the lines of the FCA-mandated general insurance value measures.
- A risk-based programme with a clear timetable for the FCA to review, report on and evaluate implementation of the Duty, including consumer outcomes.
The Consumer Duty also brings into relief the need for a coherent response to financial inclusion aspirations commonly articulated by both government and the FCA. The FCA can do more to engage mainstream firms in meeting the needs of diverse consumers safely and, separately, ensure its market insight joins up regulatory and wider public policy. However, the FCA needs to be empowered to do so through legislative change that sharpens and extends its financial inclusion powers.
We therefore believe the government should give the FCA a new financial inclusion objective that gives the regulator the additional powers it needs to promote inclusive lending and work with the government to ensure market insight informs wider public policy.
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