The new Consumer Duty regulations come into force today (31 July) in a significant strengthening of the protections available to consumers when engaging with the financial services sector.
Introduced by the Financial Conduct Authority (FCA), the Consumer Duty has been designed to “set higher and clearer standards of consumer protection across financial services and requires firms to put their customers’ needs first”.
The new rules have been introduced to target poor-value financial offerings, poor customer service and unfair practices, requiring financial services businesses to pay closer attention to the needs, characteristics and objectives of their customers. Consumer vulnerability is a key factor in the new regulations, and businesses will be expected to better serve customers with characteristics of vulnerability at every stage of their dealings with them.
As well as acting to deliver good customer outcomes, the regulations require companies to demonstrate whether those outcomes are being met. The FCA says it will “prioritise the most serious breaches and act swiftly and assertively where it finds evidence of harm or risk of harm to consumers”.
The regulations are applicable to all financial services businesses that ‘determine or have a material influence over customer outcomes’ – not just those with a direct customer relationship – and apply to products and services provided to business clients such as SMEs, as well as to individual consumers.
Consumer Duty – one of the biggest shake-ups to UK financial conduct regulation of the past two decades – came about as a response to concerns that consumers are receiving poor service and poor value for money from certain parts of the financial services sector.
As they grapple with the cost-of-living crisis, volatility in the mortgage market and rising costs of borrowing – and as technological shifts such as online-only banking and the use of AI in the sector become more widespread – many consumers are particularly vulnerable to being under-served, or to engaging in commercial practices with which they may be unfamiliar.
The FCA’s Financial Lives survey shows a widespread lack of confidence in the UK financial services industry, with people struggling to meet payments and financial anxiety taking a significant toll on mental health.
Sheldon Mills, Executive Director, Consumers and Competition at the FCA, recently remarked: “Some firms didn’t seem to be properly considering outcomes for different groups of their consumers, relying instead on broad averages. This could hide where certain types of customers – such as those on low incomes or in vulnerable circumstances – are receiving poor value, perhaps because they are unable to benefit from important product features, or are more likely to pay charges such as late payment fees.
“Some firms didn’t seem to be challenging themselves enough on uncomfortable questions – such as, are high profit margins on a specific product a sign that those customers are not getting fair value?
“We expect to see all firms taking an honest and critical approach to their fair value assessments.”
CTSI Chief Executive, John Herriman, said: “These new rules are a step in the right direction for the financial sector, and will help better protect consumers, especially the most vulnerable. Trading Standards sees first-hand how unfair commercial practices can penalise families and individuals struggling to keep their heads above water.
“Trading Standards’ ongoing work to tackle illegal money lending also shows the harmful consequences of people being unable to access finance through legitimate routes. It is vital that legal safeguards and fair treatment are available to everyone when banking, borrowing or buying products like insurance. Like the FCA, Trading Standards will be keeping a close eye on businesses to ensure that the rules are being followed and that consumers’ best interests are being protected.”
Full details of the Consumer Duty, including the rules and guidance for business, are available here.