The phrase Consumer Duty has been much bandied about in recent months, but what does it actually mean for consumers and when does it come into effect?
What is Consumer Duty?
In July 2022 the Financial Conduct Authority (FCA), the financial services regulator, published guidance setting out a new Consumer Duty to cover how regulated financial services firms treat customers. The aim is to ensure ‘higher and clearer standards of consumer protection across financial services and require firms to act to deliver good outcomes for customers’.
In fact, reassuringly, most firms already operate with the customer’s best interests at the heart of what they do. So, what does this new guidance mean in practice?
The Consumer Duty requires firms to assess their products and services to ensure they are providing fair value to retail customers and putting the interests of customers first. The FCA says firms should ensure that “the interests of their customers are central to their culture and purpose and that this is embedded throughout the organisation”. Underlying this are three key rules that firms must:
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Act in good faith towards retail customers
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Avoid foreseeable harm to customers
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Enable and support retail customers to pursue their financial objectives
4 Consumer Duty outcomes for firms to achieve
There are four outcomes which firms will be expected to achieve in all dealings with retail customers as set out under the Consumer Duty. These are:
Consumer understanding – customers must be given all necessary information to ensure they have a clear understanding of the product or service being offered and can make the right decision for them.
Price and value – the goods or services offered to the customer must represent the best option available for their circumstances and sold at a fair price that reflects their value.
Products and services – these must be designed to meet customers’ needs, in other words to be ‘fit for purpose’ and appropriate.
Consumer support – customers should be able to access help and support through clear channels that are as easily accessible to them as in the pre-sale stage of their dealings with a firm.
How will my firm benefit from Consumer Duty?
The Consumer Duty will require all financial services firms to adhere to even higher standards in their dealings with retail customers, in order to ensure that financial services genuinely work well for all consumers. It should help to build trust and confidence in the financial services industry.
The FCA also believes the Duty will boost competition, with firms ‘competing and innovating to attract and retain customers based on the quality of their products and services and the value they can deliver’.
The Consumer Duty will be implemented at a challenging time for both the economy and consumers, with the rising cost of living highlighting the importance of ensuring fair outcomes for all customers.
When do Consumer Duty changes come into play?
Financial services firms have long been required to treat customers fairly under FCA rules. However, the new Consumer Duty with its higher standards of conduct will come into force on 31 July 2023 for new and existing products or services that are open to sale or renewal.
Where firms have products or services that are no longer marketed or distributed to retail customers, these rules will come into force on 31 July 2024.
