Call of Duty: The FCA’s rules on consumer protection, and how they’ve settled in

In any business it’s good practice to prioritise the customer’s interests, and that’s particularly true of the financial services industry. We welcomed the Financial Conduct Authority’s latest policy on Consumer Duty. But what are the new regulations, and what impact have they had on our day-to-day work?

The background

In July 2022, following a widespread review, the FCA published final rules and guidance on the new Consumer Duty regulations.  The Consumer Duty sets higher and clearer standards of consumer protection across financial services.  It requires firms to act in good faith, avoid foreseeable harm and support customers to achieve their financial objectives. The Consumer Duty aims to drive culture and conduct changes in firms by placing an expectation that a firm’s approach is embedded across the entire customer journey.

A phased introduction means that while the rules have applied to existing products and services from July 2023, they’ll come into force for closed products and services from 31st July this year. If you’d like a reminder of the FCA’s position, you can find information and resources here.

Recent FCA Review

The FCA states that while firms have already developed robust frameworks to implement the new rules, some are still lagging behind. A review of the Consumer Duty implementation published by the FCA in February 2024 found that whilst there are improvements made by many firms, there are still some areas where firms need to improve ahead of the closed products deadline of the 31^st of July. The FCA states it has seen firms: “Where the Duty is primarily driven by programme teams or risk and compliance colleagues, and isn’t discussed at Board level. Firms need to ensure that the focus on good customer outcomes is understood at all levels, in their strategies, leadership, and people policies.”

Even if you believe you are doing everything correctly, it’s worth having a look at the key principles again, just to make sure.

The Hierarchy

It may be helpful to think of the Consumer Duty rules as a hierarchy. At the top, there’s the over-arching duty to deliver good customer outcomes. As we move down the pyramid, we find the more detailed rules and guidance that support the general approach.

1. The Consumer Principle (Principle 12)

This overarching principle states that “a firm must act to deliver good outcomes for retail customers.” It’s important to note that as well as delivering good outcomes, the FCA expects firms to be able to evidence that these outcomes are being met.

2. The cross-cutting rules

These rules fundamentally underpin the everyday actions of yourself and your firm. Across the entire structure of your business, whether it’s how you’re contacting and interacting with your clients, right up to the design of services and remuneration the FCA, expects firms to:

• Act in good faith towards retail customers
  • Acting in good faith is a standard of conduct characterised by honesty, fair and open dealing and acting consistently with the reasonable expectations of retail customers.

• Avoid causing foreseeable harm to retail customers
  • Foreseeable harm may be caused by both act and omission, in a firm’s direct relationship with a retail customer or through its role in the distribution chain even where another firm in that chain also contributes to the harm.

• Enable and support retail customers to pursue their financial objectives
  • This rule is concerned with the financial objectives of the consumer in relation to the financial product or service and applies throughout the customer journey and life cycle of the product or service.

All three rules require a solid level of understanding, and if you’re not already familiar, be sure to make use of the FCA's document titled 'FG22/5 Final non-Handbook Guidance for firms on the Consumer Duty which has a lot more helpful detail on examples that pertain to the rules above.

3. The four outcome areas

The fundamental intention of Consumer Duty is to drive higher and clearer standards of consumer protection across financial services within four defined outcomes:

1. Products and Services: consumers should be sold products and services that are suitable and designed to meet their needs, characteristics and objectives.
2. Price and Value: consumers should get products and services which offer fair value.
3. Consumer Understanding: consumers should be able to understand the information they are given and make timely and informed decisions.
4. Consumer Support: consumers should be provided with support that meets their needs.

Putting it into action

Now that the FCA’s Consumer Duty rules have come into effect, it’s even more important to continue to put yourself in the shoes of your customers, think about what constitutes good customer outcomes is and use the described principles and rules to guide the execution of your services.

For more details, take a look at the Consumer Duty resources on the FCA’s website here. We’ve also produced an informative webinar that gives a little more context on the changes, and explains the long-term value of understanding and applying the new rules.

We’re expecting ongoing updates on Consumer Duty embedding in the months to come, not least as the regulations will apply to closed products and services from July 2024. We recommend keeping informed via the latest publications and communications from the FCA.

We’ll always do what we can to share our knowledge with brokers like you. So, watch this space.