The Garrulous Jay – Call Of Duty

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The 31st July 2023 will see the introduction of the Financial Conduct Authority’s new Consumer Duty regime. Described by one industry participant, Abrdn, as “potentially the biggest piece of regulation to hit the financial services industry for some time”, what it seeks to achieve and what this tells us about the industry are depressingly familiar.

Sitting atop the new regime is a new overarching principle, Principle 12, which states that, “A firm must act to deliver good outcomes for retail customers”.

Principle 12 is then underpinned by three so-called “Cross-cutting Rules”, requiring firms to (1) act in good faith towards retail customers, (2) avoid foreseeable harm to those customers, and (3) ensure and support customers to pursue their financial objectives.

All of this is supported by four Outcomes for consumers of retail financial services products which are covered in the FCA’s Consultation Paper CP21/36, and are as follows:
1. Products and services – “We want all products and services for retail customers to be fit for purpose”
2. Price and value – “We want all consumers to receive fair value”
3. Consumer understanding – “We want firms’ communications to support and enable consumers to make informed decisions about financial products and services”
4. Consumer support – “We want firms to provide a level of support that meets consumers’ needs throughout their relationship with the firm”.

Going forward all firms will be required to make compliance with the regime a central objective and a priority for the Boards of those organisations. Furthermore, Consumer Duty imposes a higher burden of expectation on market participants being able to evidence the steps they are taking to monitor and comply with their obligations.

Without question all of the above is laudable. What is depressing is that any of it is necessary.

Is it not extraordinary that any industry needs to be told that its guiding principle should be to work to deliver good outcomes for its customers? What organisation with any interest in being successful over the long-term would not anyway be seeking to do this?

And yet sadly it seems that the financial services industry – or more specifically certain market participants within the industry – are unable to help themselves, and by implication place self-interest ahead of long-term consumer benefits.

The same might be said of the cross-cutting rules: it is hard to think of a situation in which any organisation would want to act in bad faith, harm its customers and not help them to pursue their goals. Evidently, though, some do.

Ultimately, though, I wonder whether the new Consumer Duty regime will serve as a deterrent to those who are determined to operate in a way that runs counter to the interests of their customers. Rules have been in place covering almost all of these areas for many years.

I also think grey areas remain particularly, in my opinion, around foreseeable harm, and price and value.

Good industry practitioners have nothing to fear from the introduction of the Consumer Duty. It is to be hoped that consumers have much to gain too.