Financial services companies must have consumer duty in place from July 2023
The shake-up will require firms to act in good faith, avoid causing foreseeable harm and enable and support customers to pursue their financial goals.
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A new consumer duty requiring financial services firms to put their customers’ needs first will come into force from July next year.
The duty will set higher and clearer standards of consumer protection, the Financial Conduct Authority (FCA) said.
In its final rules and guidance, the FCA said: “We want to see a higher level of consumer protection in retail financial markets, where firms compete vigorously in consumers’ interests.”
It said companies need to understand their customers’ needs and have the flexibility to support them.
The document said: “This is particularly important as consumers face increasing pressures, including those relating to the cost of living.
“Even before cost-of-living pressures emerged, consumers were being asked to make an increasing number of complex and important decisions in a faster and increasingly complex environment.”
Some firms present information in a way that is misleading or difficult to understand, while some sell products or services to consumers that are not right for them or which do not offer fair value, or provide poor customer service and support, the FCA said.
The duty includes a consumer principle that “a firm must act to deliver good outcomes for retail customers”.
The shake-up will require companies to act in good faith, avoid causing foreseeable harm and enable and support customers to pursue their financial objectives.
The duty will include requirements for firms to make it as easy to switch or cancel products as it was to take them out in the first place, with an end to “rip-off” charges and fees.
Companies will also have to provide helpful and accessible customer support, not making people wait so long for an answer that they give up, the regulator said.
They will also need to provide timely and clear information about products and services so consumers can make good financial decisions, rather than burying key information in lengthy small print.
The regulator also expects businesses to provide products and services that are right for their customers and focus on diverse needs, including people in vulnerable circumstances.
One question that firms can ask themselves is whether they are applying the same standards and capabilities to delivering good customer outcomes as they are to generating sales and revenue, the FCA said.
For example, companies could ask themselves whether communications focused on supporting customers are as clear as those used to sell the product.
They could also ask themselves whether the quality of any post-sale support is as good as the pre-sale support.
The rules will come into force on a phased basis.
For new and existing products or services that are open to sale or renewal, the rules come into force on July 31 2023.
For closed products or services, the rules come into force on July 31 2024, giving firms more time to bring older products, no longer on sale, up to the new standards.
Previously, an implementation period of nine months, ending on April 30 2023, had been suggested.
But the FCA’s document said industry respondents felt strongly that this was “highly challenging” and some may decide simply to withdraw products or services if the implementation period was too short.
This shouldn't be a reason for firms to delay their preparation
Vince Smith-Hughes, director of specialist business support at M&G Wealth, said: “It’s good to see the FCA taking on board feedback from the consultation and giving firms additional time to embed the rules and guidance.
“However, this shouldn’t be a reason for firms to delay their preparation.”
The FCA said it will measure the success of the changes by monitoring key outcomes for consumers; for example, by looking at the Financial Ombudsman Service’s decisions on consumers’ complaints about fees or charges or inappropriate product or service sales.
It will also use its Financial Lives survey to monitor how people are feeling.
Its 2020 Financial Lives survey found that only 10% of consumers strongly agreed they had confidence in the UK financial services industry, with a further 32% slightly agreeing. Only 35% agreed firms are honest and transparent in their dealings with them.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “The current economic climate means it’s more important than ever that consumers are able to make good financial decisions. The financial services industry needs to give people the support and information they need and put their customers first.
“The consumer duty will lead to a major shift in financial services and will promote competition and growth based on high standards.
“As the duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.”
Joanna Elson, chief executive of the Money Advice Trust, which runs the National Debtline and Business Debtline, said: “The introduction of a new consumer duty is a watershed moment in consumer protection in financial services and builds on the FCA’s work, in recent years, to improve support for people in vulnerable circumstances.
“At a time when millions of people’s finances are under huge strain, I am encouraged by the regulator’s emphasis on higher and clearer standards of protection, which should provide greater clarity to consumers and firms alike.”
Helen Undy, chief executive of the Money and Mental Health Policy Institute, a research charity set up by consumer champion Martin Lewis, said the new duty is “a major step forward”.
She said: “We need to see firms making changes now to protect people through the cost-of-living crisis, rather than using the FCA’s extended deadline as a reason to take their foot off the gas.”