After finding that the obligation to treat customers fairly is falling short, the U.K.’s Financial Conduct Authority (FCA) is proposing to introduce “best interest” conduct standards.
The FCA revealed on May 14 that it will be proposing reforms designed to provide stronger consumer protection in the country’s retail financial sector.
Firms are already required to treat customers fairly under the FCA’s rules. But the regulator has concluded that, under that existing obligation, it still finds evidence of industry practices that cause consumer harm, including incomplete or misleading disclosure.
The regulator noted that this may also explain why only 35% of respondents to its latest consumer survey said that financial firms are honest and transparent.
As a result, the FCA said that it’s proposing to measures to enhance consumer protection and raise conduct standards, with a new “consumer duty.”
“The new duty will drive a shift in culture and behaviour for firms, meaning that consumers always get products and services that are fit for purpose, that represent fair value and are clearly communicated and understandable,” the regulator said in a release.
The proposed new duty will feature a new principle that either requires firms to act in the best interests of retail clients, or to deliver good outcomes for clients. It also will require firms to take all “reasonable steps” to avoid foreseeable harm to customers, and will feature new rules and guidance that set more detailed expectations for firms.
“The package of measures we are proposing will enhance our existing rules and is designed to tackle the harms we see in financial services markets, and their causes, as well as put consumers in a stronger position to make good decisions,” said Sheldon Mills, executive director of consumers and competition at the FCA.
“We want firms to be putting themselves in the shoes of consumers and asking ‘would I be happy to be treated in the way I treat my customers?.’ We want consumers to be able to advance their financial wellbeing and build positive futures for themselves and their families,” Mills added.
The FCA has launched a consultation on the proposed new duty, open until July 31. A further consultation on proposed rule changes is planned by the end of 2021, with new rules finalized by the end of July 2022.
The regulator also will be consulting on the potential benefits of creating a right of action under the new duty that would enable customers to seek redress for violations of the new rules.
In Canada, a series of measures take effect this year that are also intended to raise industry conduct standards and ensure that firms prioritize clients’ best interests.