The City watchdog today threw down the gauntlet to the financial services industry by launching a fresh regime that puts consumers at the heart of firms’ work.
The Financial Conduct Authority (FCA) set out plans to introduce a new guiding duty that is intended to bolster consumer protections.
The move has been sparked by the regulator’s agitation over “financial services markets… not always work[ing] well to provide adequate levels of consumer protection,” it said.
The watchdog wants to stamp out malpractice that can inflict serious financial hardship on consumers by clamping down on dubious selling tactics, including packaging information that exploits peoples’ behavioural biases.
A string of scandals including the collapse of Neil Woodford’s investment trust and the mis-selling of minibonds by London Capital and Finance has left consumers high and dry, whacking confidence in the financial services industry.
According to the FCA’s research, only 10 per cent of Brits strongly agreed they trust the UK financial services industry.
Under the new rules, firms must act to deliver good outcomes for clients, similar to the fiduciary duty that guides fund managers’ investment decisions.
“The new duty will drive a change in culture at firms. We expect firms to step up and put consumers at the heart of what they do,” said Sheldon Mills, executive director of consumers and competition at the FCA.
However, the proposals sparked concern among City bigwigs over the new duty swelling costs and administrative burdens that will ultimately sting consumers with higher prices.
“There is a cost to this,” warned Claire Carroll, partner at law firm Eversheds Sutherland.
Companies complying with the new consumer duty “will face an increased compliance burden, which may well trickle down into higher costs for customers,” she added.
Under the new regime, firms will need to monitor how they are quashing risks to consumers and “evidence the extent to which and how they are acting to deliver good outcomes,” the FCA said.