Posted December 7, 2021
Joanna Elson CBE, Chief Executive of the Money Advice Trust, shares initial reaction to today’s proposals for a new Consumer Duty on financial services firms
At the end of each year there is often a flurry of announcements and consultation responses, as everyone involved in the public policy process works to make progress before the year is out. One such announcement – of particular significance to the people we help at National Debtline and Business Debtline – was delivered today by the FCA as they confirmed their plans to introduce a new Consumer Duty across the retail financial services sector.
I wanted to share our initial reflections on what is, in our view, a positive set of aims on enhancing protection for all who use financial services.
Strengthened consumer protection
The Consumer Duty has been several years (and three consultations) in the making and has, understandably, prompted much debate. In our work, we see that many firms are already working hard to deliver good outcomes for consumers. Through our training, consultancy and engagement activities, we’ve worked with hundreds of firms to improve how they identify and support vulnerable customers and seen first-hand the passion and dedication of staff to get things right for them.
However, we cannot escape the fact that there is still significant poor practice in some areas of the market. We expect the new Duty to go a long way to tackling this.
Of course, there is a balancing act to be struck – firms cannot be expected to be responsible for things outside their control and the FCA makes clear they will not be. Similarly, the FCA’s proposals confirm that the Duty does not change the underlying principle that consumers are responsible for their own financial decisions.
What the FCA’s proposals do, however, is recognise that consumers can only reasonably be expected to take responsibility for their decisions if firms act in the right way. Where we have seen significant harm in financial services, it has typically been the result of firms exploiting behavioural biases, vulnerability or people’s lack of knowledge, understanding or time to engage on financial decisions.
Strengthening firms’ responsibilities to avoid forseeable harm and enable consumers to make good decisions should bring benefits for everyone – consumers and firms alike.
What will the Consumer Duty look like?
So, while we support the overarching concept of the Duty, what will it look like in practice? Today’s announcement confirms the FCA’s plan for the structure for the Duty – with some small changes following feedback on the original proposals earlier this year.
This includes an overarching consumer principle – stating a firm “must act to deliver good outcomes for retail customers”. In most cases, this new principle replaces the existing Treating Customers Fairly principle – demonstrating the FCA’s intention for the new Duty to strengthen the existing consumer protection framework.
There will be three cross-cutting rules for firms to “act in good faith” towards retail customers, avoid “foreseeable harm” and “enable and support” retail customers to pursue their financial objectives – as well as four ‘outcomes’ covering products and services, price and value, consumer understanding and customer support.
Having these different levels of the duty should provide a robust structure, which embeds a focus on the Duty throughout a firms’ work. It is also good to see the continuing, strong focus on product and service design, something we have been talking about a lot through our Inclusive Design work with Fair By Design.
The FCA has also published 70 pages of guidance to help firms implement the duty, which should help firms interpret and follow the principles in practical terms.
Welcome detail on authorisation, supervision and enforcement
In the Trust’s response to the previous consultation, we made clear that the Duty will only be effective if appropriately enforced. In this instance, the FCA has clearly heard the feedback from us and others, stating they will ‘back up these rules with assertive supervisory and enforcement action’ and providing welcome detail on how they intend to do so. Given the importance of this in delivering on the ambition of the Duty, it will be an area that we and others will look at closely.
No private right of action… yet
A final reflection on today’s announcement is the FCA’s decision not to attach a private right of action to the Duty, which we had hoped they would. This would have allowed individuals to take legal action if a firm had breached their responsibilities under the Duty.
While the prospect of lots of individuals taking firms to court was always remote, given the time and costs involved, having a private right of action would have given the FCA the power to impose an industry-wide redress scheme based on breaches of the Duty and provide a strong deterrent to firms who act poorly.
The FCA has not yet been convinced of the need for that, but has promised to keep this decision under review, depending on how firms are complying with the duty. One to watch.
Good for consumers… and good for firms
There is now a further consultation period and the whole of the financial services sector will no doubt be scrutinising the detail of these final proposals carefully. However, on the basis of what we have seen so far, the Duty is something to warmly welcome – and represents a significant step-up in consumer protection.
While we don’t underestimate the impact this will have on firms, it is clear that there will be benefits for them too. Firms who genuinely do the right thing for customers deserve to be part of a level playing field - where everyone must compete based on the level of service provided and the outcomes customers receive - and not being undercut by firms exploiting consumer bias or vulnerability.
Throughout Covid-19, we’ve seen that financial services can be at the forefront of helping their customers. From preventing someone falling into debt, helping them get out of debt safely, or supporting them to achieve good financial outcomes overall – financial services are important to us all achieving positive outcomes in life. The FCA’s proposals today will help to cement that expectation and provide greater protection for all consumers.
Joanna is chief executive of the Money Advice Trust. Previously, she was Executive Director at the British Bankers' Association and a Parliamentary researcher and prior to that, a primary school teacher. She has a CBE for services to people in debt. View all posts from Joanna Elson.