The UK’s top financial watchdog has revealed plans to tighten protections for consumers today in the biggest regulatory reform to hit financial services firms in a decade.
The new Consumer Duty, confirmed by the Financial Conduct Authority today, will enshrine a new Consumer Principle in regulation which requires firms to “act to deliver good outcomes for retail customers”, superseding current rules which require firms to treat customers “fairly”.
Measures introduced by the watchdog will look to end “rip-off charges” and ease the way that consumers switch and cancel products, the FCA said today, as well as improving the way that firms communicate with customers.
Speaking to reporters yesterday, Sheldon Mills, Executive director of Consumers and Competition at the FCA told reporters that the cost of living crunch had underlined the need for reform in the financial services sector.
“Personal finances are coming under increasing strain as inflation rises. Being able to make good financial decisions and be supported by financial services firm is more important than ever as we move forward,” he said.
“And we want to ensure firms make it as easy for consumers as possible to get support. That means making sure the firms we regulate treat people fairly and support customers struggling due to the cost of the crisis.”
After major pushback from the industry over the timelines of the new rules – originally slated to come in from April next year – the FCA has climbed down from the plans and said it would now extend the period from nine to 12 months, however.
So-called closed book products – those no longer on sale – will have an additional 12 months to be brought up to new standards by firms. Mills told City A.M. the FCA would also not immediately clampdown on firms with the full force of its toolbox after the 12 month period as it gathered evidence and gauged how the industry reacted to the rules.
The changes come as the FCA looks to take a more “assertive approach” to regulation by setting expectations for firms rather than retroactively adapting regulation to prevent malpractice.
“We want to move towards an outcomes based regulation by setting out our overarching expectations clearly and requiring them to test and demonstrate how they’re delivering good customer outcomes,” Mills told reporters, adding that the regulator would be holding senior managers to account for this duty.
Adhering to the new duty will now become a board issue with directors expected to take accountability and report to the watchdog on request, the FCA confirmed.
The overhaul comes amid a period of changeover at the City watchdog as it grapples with an expanding remit and a dip in staff numbers.
Legal commentators said the changes would be intended to reduce the interventions required by the regulator by proactively setting standard.
“The FCA is clearly intending that these changes should result in fewer instances of intervention in the longer term and thereby creating increased stability in the retail financial services sector over the next few years rather than firms having to implement regulatory change after regulatory change, often in relatively short periods of time,” said Joanne Owens, a consumer finance and retail financial services regulatory Partner, Eversheds Sutherland.