The FCA has confirmed plans to bring in a new consumer duty, which is set to improve how firms serve UK consumers.
The aim is to set higher and clearer standards of consumer protection across financial services, and require firms to put their customers’ needs first.
“The duty is made up of an overarching principle and new rules firms will have to follow,” the FCA said on Wednesday.
Firms will be required to end rip-off charges and fees, and make it as easy to switch or cancel products as it was to take them out in the first place.
In addition to this it will also provide helpful and accessible customer support, not making people wait so long for an answer that they give up, and provide timely and clear information that people can understand about products and services.
This will mean consumers can make better financial decisions, rather than having key information buried in lengthy terms and conditions that few have the time to read.
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The FCA also said that the move will provide products and services that are right for their customers, and allow businesses to focus on the real and diverse needs of consumers, including those in vulnerable circumstances.
The duty changes form part of the FCA's transformation to becoming a more assertive and data-led regulator.
“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,” Sheldon Mills, executive director of consumers and competition, said
“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.”
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Chris Hill, chief executive at Hargreaves Lansdown, said: “We welcome the FCA’s intention to use the consumer duty to create more flexibility for firms to compete and innovate in the interests of consumers. This is exactly what our digital transformation at HL is all about. We are investing in more tools and nudges to drive better client outcomes.
“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.”
The regulator is giving businesses one year to implement the new rules for all 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 these older products, that are no longer on sale, up to the new standards.
Tom Selby, head of retirement policy at AJ Bell, said: “One of the big challenges facing the FCA is ensuring there is a credible threat of enforcement for firms that fail to meet its expectations. The inconvenient truth is that ‘good’ firms are likely to already be meeting much of the regulator’s new expectations, while ‘bad’ firms are often flouting the existing rules,”
He added: “To raise the laggards up to the standard of ‘good’ firms, the FCA will need to demonstrate ‘bad’ firms will be punished.
“The Financial Ombudsman Service (FOS) will also play a critical role in interpreting the consumer duty on the ground. There is a very real risk that spurious complaints will be made against firms by Claims Management Companies (CMCs) looking to take advantage of the new standard.
“The regulator will need to watch CMCs like a hawk and come down hard on any dodgy behaviour.”
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