Financial services firms will have a new duty to put their customers’ needs at the heart of what they do, under plans being set out by the Financial Conduct Authority (FCA).
The regulator stated that the new consumer duty will lead to a major shift in financial services, fundamentally improving how firms serve customers. It includes a consumer principle that “a firm must act to deliver good outcomes for retail customers”.
Firms are being given 12 months to implement the rules for new and existing products and services that are currently on sale.
The rules will be extended to “closed book” products 12 months later to give firms more time to bring older products, no longer on sale, up to the new standards.
The duty will include requirements for firms to make it as easy to switch or cancel products as it was to take them out in the first place, with an end to “rip-off” charges and fees.
Those affected by the regulation will also have to provide helpful and accessible customer support, not making people wait so long for an answer that they give up, the FCA outlined.
They will also need to provide timely and clear information that people can understand about products and services so consumers can make good financial decisions, rather than burying key information in lengthy small print.
The regulator also expects businesses to provide products and services that are right for their customers and focus on diverse needs, including people in vulnerable circumstances.
The FCA previously said that it had seen firms presenting information in a way that exploits consumers’ behavioural biases, selling products or services that are not fit for purpose, or providing poor customer support.
A survey it carried out in 2020 found only 10% of consumers strongly agreed they had confidence in the UK financial services industry, with a further 32% slightly agreeing. Only 35% agreed firms are honest and transparent in their dealings with them.
A previous consultation on the plans ended in February.
The FCA said the new duty forms part of its transformation to become a more innovative, assertive and adaptive regulator and is a key part of its three-year strategy to improve outcomes for consumers and in markets throughout the UK.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “The current economic climate means it’s more important than ever that consumers are able to make good financial decisions.
“The financial services industry needs to give people the support and information they need and put their customers first.
“The consumer duty will lead to a major shift in financial services and will promote competition and growth based on high standards.
“As the duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.”
The FCA has a parliamentary mandate, through the Financial Services Act 2021, to take the work forward.
Jonathan Herbst, global head of financial services regulation at Norton Rose Fulbright, said: “The Consumer Duty represents a step change for firms in how they are expected to treat retail customers.
“It will be important for firms to interpret the overarching Consumer Principle and the accompanying rules and guidance within this context - although it will take time to see the effect of these proposals on the market, it is clear at this stage that firms will need to undertake a thorough review of their current approach to retail customers.
“As many of these rules come into force in only a year, firms all across the market will quickly need to get to grips with these proposals in order to meet the FCA’s implementation deadline.”
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