LONDON – Britain’s financial watchdog set out plans on Tuesday for a “reset” in consumer protection that puts the onus on firms to prove good outcomes for customers, after a string of mis-selling scandals going back decades.
The Financial Conduct Authority, slammed for its botched handling of collapsed investment fund London Capital & Finance and facing a surge in online scams, is seeking to buttress its ability to stop poor conduct.
In a public consultation paper, the watchdog has proposed that from April 2023 firms must comply with a new ‘consumer duty’ principle which says they must act to deliver good outcomes and value to retail customers.
“We expect firms to step up and put consumers at the heart of what they do, and we’ll be holding senior managers accountable if they do not,” said Sheldon Mills, the FCA’s executive director for consumers and competition.
Firms are currently required to treat their customers fairly and not mislead them, but the FCA proposes they go a step further by showing evidence of good outcomes, rather than just complying with product governance rules.
“This is set to change the face of the consumer financial services market,” said Heather Alleyne, a financial services regulation partner at consultants EY.
Obtaining good outcomes saddles firms with an extra duty of vigilance in design, communication and after-sales, said Simon Morris, a financial services partner at CMS law firm.
“A product sold in good faith in 2022 that doesn’t work a few years later can be challenged as a bad outcome,” Morris said.
The “one sweetener” for financial firms is that the FCA has decided not to allow consumers to make a claim in court for breaches of the new consumer duty, Morris said.
Despite calls from consumer groups for such a “right of address”, the FCA said it was better and cheaper to pursue redress through the existing, free Financial Ombudsman Service.
The Money Advice Trust, a debt charity, said the planned changes should protect consumers better and stop firms undercutting rivals who already do the right thing.
The watchdog acknowledged the new duty of care will only work if enforced properly. It has already announced an internal revamp allowing it to intervene faster, armed with better data.
