Financial services firms will have a new duty to put their customers’ needs at the heart of what they do, under plans being set out by the City regulator on Wednesday.
The Financial Conduct Authority (FCA) said the new consumer duty will lead to a major shift in financial services, fundamentally improving how firms serve customers.
The duty includes a consumer principle that “a firm must act to deliver good outcomes for retail customers”.
Firms are being given 12 months to implement the rules for new and existing products and services that are currently on sale.
The rules will be extended to “closed book” products 12 months later to give firms more time to bring older products, no longer on sale, up to the new standards.
— Financial Conduct Authority (@TheFCA) April 8, 2022
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.
Firms 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 that people can understand 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.
The FCA previously said that it had seen firms presenting information in a way that exploits consumers’ behavioural biases, selling products or services that are not fit for purpose, or providing poor customer support.
Its 2020 financial lives survey found 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.
A previous consultation on the plans ended in February.
The FCA said the new duty forms part of its transformation to become a more innovative, assertive and adaptive regulator and is a key part of its three-year strategy to improve outcomes for consumers and in markets throughout the UK.
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.”
The FCA has a parliamentary mandate, through the Financial Services Act 2021, to take the work forward.
Rocio Concha, Which? director of policy and advocacy, said: “There are too many instances where the financial services market does not meet consumer needs or provide customers with adequate protection, so we are pleased that the Financial Conduct Authority has confirmed that it will introduce a new duty to raise standards and place consumers at the heart of what businesses do.
“Strong consumer protections are always needed, but at a time when household budgets are being squeezed by a cost-of-living crisis, they are even more essential.
“The financial industry must get on board with these new protections, and firms that are in a position to do so now shouldn’t wait for them to be formally introduced to deliver positive change for consumers. Where businesses fail to meet the new rules, the FCA must stand ready to impose tough penalties.”
Matthew Upton, director of policy at Citizens Advice, said: “Customers should get good service at a fair price. Yet, time and time again, we see firms overcharging loyal customers, selling poor products and making it tricky for shoppers to make careful, informed decisions.
“In a fast-changing world, it’s harder than ever for regulators to adapt and protect consumers.
“We support the FCA’s consumer duty, but the wait for it shouldn’t be seen as a green-light for firms to play fast and loose with customers while they can.”
Chris Hill, CEO at Hargreaves Lansdown, said: “With the consumer duty in place, we are keen to see the FCA revise its own rule book, to remove regulations which hinder innovation in the interests of consumers.
“There is scope for us to personalise guidance to clients to a greater extent, to drive engagement and better outcomes. We look forward to working with the FCA on this agenda as we embed the consumer duty at HL.”