FCA confirms long-awaited Consumer Duty rules

The Financial Conduct Authority (FCA) has finalised its much anticipated Consumer Duty rules, with the new regime described as “a significant undertaking” for many firms in the insurance industry.

The rules introduce a new Consumer Principle that requires firms to act to deliver good outcomes for retail customers. Under the principle, firms will be required to consider the needs, characteristics and objectives of their customers and how they behave, at every stage of the customer journey. As well as acting to deliver good customer outcomes, firms will need to understand and evidence whether those outcomes are being met. These outcomes relate to products and services, price and value, consumer understanding, and consumer support.

Within this, the  FCA has created “cross-cutting rules”' to provide clarity on its expectations and the behaviours firms are expected to exhibit. This means taking reasonable steps to prevent harming customers in future, enabling customers to pursue their financial objectives, and acting in good faith.

The regulator said the new rules “set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first”.

Consumer Duty rules and guidance will come into force on a phased basis. On July 31, 2023, the rules will kick in for new and existing products or services that are open to sale or renewal. A year later, on 31 July 2024, the rules will be enforced for closed products or services.

Vivian Pereira, advisory and consulting partner at Mazars, said the publication of the final regime for the Consumer Duty was “a significant milestone” in UK financial services regulation.

“Firms now have certainty about the new regime – and the longer implementation period will be welcomed by the financial services industry.

“With the new regime now finalised, firms can take forward their plans for implementing the Duty; for many firms this will be a significant undertaking.”

Matthew Connell, director of policy and public affairs of the Chartered Insurance Institute, welcomed the  FCA's stance that strong consumer confidence and participation in markets should be a key outcome of the Consumer Duty.

“No market can exist without the confidence of the public, and it is important that we measure the key elements of confidence and trust in order to identify areas where changes are needed and where more regulation would be unnecessary. The CII has been measuring levels of trust in insurance since 2018, and we look forward to contributing our insights to the measurement of this important outcome.”

He said the CII supported the  FCA's move to outcome-based regulation, saying that detailed and prescriptive rules “create unnecessary bureaucracy” without necessarily providing better outcomes for the public. But he recognised the concerns of some firms that outcomes-based regulation “may leave them with responsibilities for outcomes over which they do not have complete control”.

He said: “The  FCA needs to be specific about the kind of culture and mindset that it is looking for within firms so that it can treat firms that are looking for the right answer but have not yet found it differently from firms that are not interested in improving consumer outcomes.”

Connell also warned there was “a danger” that because price is easy to measure and value is more subjective, the  FCA will take the path of least resistance and focus on price.

“This approach is likely to lead consumers and SMEs to buy less suitable products and be less informed about all the risks they take. A focus on price at the expense of value will undermine the objectives of the Consumer Duty.”

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