The Financial Conduct Authority will require firms to demonstrate how they meet client needs through a new Consumer Duty.
It has published (7 December) a consultation and draft guidance to help firms prepare before the introduction of the new duty.
The consultation is open until 15 February 2022 and the FCA expects to confirm any final rules by the end of July 2022.
The new rules aim to ensure good customer outcomes in four key areas:
- Governance of products and services
- Price and value
- Consumer understanding
- Consumer support
FCA executive director of consumers and competition Sheldon Mills said: “Making good financial decisions is vital to financial well-being and trust, but too often consumers are not given the information they need to make good decisions and are sold products or services that do not offer the benefits they might expect. We want to change that.
“We’ve been working to set a higher standard for firms, to put more of the onus on them to act in their customers’ interests and get their products and services right.
“The new duty will drive a change in culture at firms. We expect firms to step up and put consumers at the heart of what they do and we’ll be holding senior managers accountable if they do not.
“The duty will also help create an environment for healthy competition between firms, encouraging them to be innovative in developing products and services that meet consumer’s needs.”
Reacting to the publication of the consultation Mike Barrett from the Langcat said:
AJ Bell head of retirement policy Tom Selby added: “Nobody could argue with the intent of these proposals, which is to ensure good outcomes are at the heart of everything financial services firms do. This applies across all facets of the value chain, from product design to marketing and communications.”
But he went on to say “most ‘good’ firms should already be operating in this way” and there were questions about how the duty would be enforced.
He said: “The inconvenient truth is that the majority of ‘bad’ actors in financial services either flout existing rules entirely or take a slapdash approach to treating customers fairly.
“While the FCA is right to focus on boosting standards across the market, there also needs to be a credible enforcement threat against the minority of firms who consistently fail savers and investors.
“The regulator says it plans to be more assertive in dealing with firms who do the wrong thing – this will be crucial in delivering improved outcomes for consumers.”