The Financial Conduct Authority (FCA) has called for a “fundamental shift in industry mindset” with new plans to ensure higher standards of consumer protection in financial services. 
The Consumer Duty, which was unveiled this morning, focuses on a new principle that “a firm must act to deliver good outcomes for retail customers” across multiple areas, including products and services, price and value, consumer understanding and consumer support.
Firms will be required to implement a number of “cross-cutting rules” to facilitate honest and transparent charges and easy product switches or cancelations, as well as to provide accessible customer support with clear information about products and services.
The new principle will replace the existing norm to “treat customers fairly” and to communicate information in a way which is clear, fair and not misleading.
Summing up the new standards, the regulatory said they will:
• End rip-off charges and fees
• Make it as easy to switch or cancel products as it was to take them out in the first place
• Provide helpful and accessible customer support, not making people wait so long for an answer that they give up
• 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 terms and conditions that few have the time to read
• Provide products and services that are right for their customers
• Focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction
The Consumer Duty follows extensive consultations with the industry, which began at the end of 2021, and represents the largest change in regulation since the Retail Distribution Review was brought in in 2012.
Financial services companies have been given a 12-month implementation period for all products and services currently on sale. ‘Closed book’ products, which are older and no longer on sale, will have an additional 12 months to come up to the new standards.
For the implementation, the FCA estimated one-off costs will run between £688.6m and £2.4bn, and ongoing annual direct costs in the range of £74m to £176.2m.
Tom Selby, head of retirement policy at AJ Bell, said the introduction of the duty and the shift to outcomes-focused regulation represents arguably “the biggest domestic regulatory overhaul in almost a decade” as well as “a gauntlet laid at the feet of all UK financial services firms”.
“The regulator has been absolutely crystal clear that the new rules are intended as a step up in standards, with firms required to aim for ‘good outcomes’ for customers when designing products, setting prices, providing support and communicating,” he said.
Selby also stressed that for this to be achieved the FCA must demonstrate a credible threat of enforcement against those firms that already flout its existing rules.
“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. To raise the laggards up to the standard of ‘good’ firms, the FCA will need to demonstrate ‘bad’ firms will be punished,” he said.
On this point, the FCA re-stated its intention to become “more assertive and data-led”.
“With firms assessing how they’re meeting their customers’ needs, the FCA will be able to quickly identify practices that don’t deliver the right outcomes for consumers and take action before practices become entrenched as market norms,” said the regulatory body.
Selby also criticised the decision to allow 12 additional months for updating older products which are no longer on sale.
“The regulator might argue closed-book providers need more time to update antiquated systems, but that will come as little comfort to customers stuck in poor value products and receiving unsatisfactory service,” he said.
Sheldon Mills, executive director of consumers and competition at the FCA, stressed the need, especially in the current economic climate, that consumers are able to make good financial decisions and that the financial services industry give people the support and information they need.
“The Consumer Duty will lead to a major shift in financial services and will promote competition and growth based on high standards,” he said.
“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.”