On 31 July 2023, the Financial Conduct Authority (FCA) introduced new rules titled Consumer Duty. The legislation requires financial services firms to act in a way to improve outcomes for retail customers. The aim is to embed the duty into the firm’s DNA and enhance how financial firms treat customers.
What has changed?
The Consumer Duty marks a shift towards an expectation of consumer-friendly practices, delivering good outcomes for retail clients and savers. An example of a poor outcome would be when banks offer poor savings rates to customers.
When accessing financial services such as savings, pensions, investments or credit cards, there are now greater expectations on firms. They must consistently review the products and services they offer and deliver fair value.
Companies should act in good faith when dealing with customers. Avoiding harm that is easily avoidable and helping them when pursuing their financial objectives.
Consumer Duty will hopefully ensure customers receive suitable products and services. Providers should give clear communication that is easily understood, along with customer support they can rely on.
Savers may be among the first to experience benefits.
UK Finance, the bank-representing body, has described these changes as one of the “largest shakeups in retail financial services regulation”. Another objective is to improve consumer understanding. With the aim of helping customers to be more informed about the products and services they receive.
There have been 14 increases in the UK bank base rate since December 2020. While banks have raised mortgage rates, they have not passed on those increases to savers with easy access to savings accounts.
The Financial Conduct Authority (FCA) found that 9 of the largest savings providers only passed 28% of base rate increases onto easy access deposits from January 2022 until May 2023, while smaller firms offered higher average rates than their larger competitors.
The regulator has developed a 14-point plan of action. The aim is to ensure that increases in interest rates are passed onto savers “appropriately.
According to Consumer Duty regulations, the FCA will take swift and strong action against firms who do not justify their rates as “fair”.
The FCA plans to conduct a six-monthly analysis of easy access savings rates to identify both the top and bottom providers. They will challenge providers that offer different rates to both new and existing clients while monitoring how cash savings contribute to provider profitability.
What other protections exist under the new rules?
The new FCA Consumer Duty rules include three cross-cutting rules. This part of the Act, along with other aspects of the legislation such as consumer principle 12, set higher standards and improved consumer protection.
The cross-cutting rules require firms to:
- Always act in good faith towards its customers
- Avoid causing foreseeable harm to retail customers
- Enable and support customers to pursue their financial objectives
In order to assist consumers with reaching their financial goals, financial professionals should help customers improve their financial understanding and offer additional support where this is required. This could include guides and information on financial topics to help customers make informed decisions.
When did the new regulations take effect?
Implementation Plans for Consumer duty have been going on for some time. New rules for businesses will require two milestones to take effect.
Rules will apply to new and existing products and services that are being sold, renewed or purchased from the (31st July 2023). Product Providers have an implementation period of one extra year for closed offerings that no longer meet clients’ needs like savings accounts that no longer accept new clients.
What happens if I am concerned and want to complain about a provider?
If a company does not act to deliver good consumer outcomes, you will still have the option to complain. The company will still need to follow its own complaints-handling procedure.
Allow the business time to respond. If it takes over eight weeks or is rejected, contact the Financial Ombudsman Service for further investigation.
FOS stated in its budget and plans that they anticipate an initial rise in complaints related to Consumer Duty; however, as its implementation improves consumer support and treatment, they anticipate an eventual reduction.
What does Consilium Asset Management think about the new rules?
Consilium Asset Management has reviewed and implemented changes within the consumer duty rules. In fact, as a business, we already complied with the majority of the rule changes. Our senior managers and certification regime has been reviewed, and we have made changes to our internal systems.
Will Consumer Duty be successful?
Ultimately Consumer Duty will be successful. Whether this is by enforced regulations remains to be seen. We applaud its goals and efforts to enhance consumer protection within financial services.
The FCA’s ability to supervise firms accurately and take enforcement actions against those that do not adhere will ultimately determine its success.