UK FCA issued CP21/36 which provides feedback to earlier consultation on proposed duty of care, and sets out more developed proposals for new rules to implement it.
An infographic summarizes how consumer duty will raise level of consumer protection.
Previous consultation proposed new consumer principle to ensure overarching standard of conduct, set of crosscutting rules, and outcomes that set expectations for firms.
Second consultation provides key feedback to those proposals and FCA analysis of the responses, revised proposals for consumer duty, including draft rules and guidance.
Also cost benefit analysis, and Appendix 2 of CP21/36 consults on non-handbook guidance to help firms comply with proposed obligations under new consumer duty.
Responses
FCA received 235 responses to CP21/36, all saw move to consumer duty as significant undertaking, almost all agreed it would succeed or fail on how it is supervised by FCA.
Consumer organizations generally strongly supportive, industry respondents generally supporting but raised significant concerns about proportionality and design of the duty.
Industry concerned that outcome-based regulation inherently less clear than detailed rules, CP proposes draft rules/guidance to give examples of right and wrong behavior.
This goes further than the regulator has gone with its other principles, aims to make it easier for consumers to know what they should expect, firms to know what FCA wants.
Also concerns expressed that UK FOS could take different or wider interpretation of consumer duty, and on risk of unintended consequences and higher compliance costs.
Further Consultation
CP21/36 consults on new rules and guidance setting out FCA's revised proposals for the consumer duty following regulator's consideration of responses to 1st consultation.
Includes: proposed scope of consumer duty; how duty will apply to existing products and services, including contracts entered into before consumer duty comes into force.
Proposals for consumer duty, comprising a new consumer principle that would replace principles 6 and 7 for retail business, require firms to act to deliver good outcomes.
Cross-cutting rules setting out how firms should act to deliver these outcomes, so provide greater clarity on FCA's expectations under principle, interpreting 4 outcomes.
Rules require firms to act in good faith, avoid foreseeable harm, enable and support retain customer to pursue their financial objectives, also rules relating to outcomes.
4 outcomes FCA wants to see under consumer duty relate to: governance of products and services, price and value, consumer understanding and consumer support.
Other Issues
CP21/36 also discusses how the consumer duty aligns with the FCA's work to improve outcomes for consumers in vulnerable circumstances, and on diversity and inclusion.
Sets out regulator's thinking on a private right of action (PROA), does not intend to introduce one for the consumer duty at this time, but will keep this under review.
Includes proposals for an implementation period starting after final rules are published and ending on Apr. 30, 2023, how FCA expects the implementation period to be used.
Expectations for how firms monitor consumer outcomes, FCA's high-level supervisory approach, proposed changes to senior managers and certification regime (SM&CR).
Proposes non-Handbook guidance to give firms more clarity of FCA expectations.
Effectiveness
Comments on the proposals in consultation paper to be submitted by Feb. 15, 2022.
FCA expects to publish policy statement, and make any new rules by Jul. 31, 2022.
UK ABI Reaction
On Dec. 7, 2021, UK ABI responded to the FCA's second consumer duty consultation.
Said looking after customers is its members' top priority, welcomes consultation and is pleased that FCA is not proposing to introduce PROA as would add extra complexity.
Much work already done re consumer protection, there is good practice out there and ABI will continue to work with members and FCA to contribute on this important issue.
UK PIMFA Response
On same date, UK PIMFA raised concerns about what it called FCA's woolly proposals, and questioned whether they will remove bad actors from the market as intended.
Considers rules and guidance published in CP21/36 remain too theoretical, will lead to confusion for both consumers and firms in terms of expectations of a good outcome.
Thinks there could be significant rise in cases brought against firms at UK FOS through no fault of their own, but due to lack of clarity from FCA on its expectations of FOS.
Said most firms in its sector already operating at FCA's expectations, those that do not should be dealt with under existing rules, rather than adding more rules to be ignored.
In order for these reforms to be worthwhile and impactful consumer duty needs to empower FCA to finally drive bad actors out with effective supervision, enforcement.
Feels it is unclear whether the regulator's proposals will lead to this happening.
Feb. 2022 PIMFA Response
On Feb. 15, 2022, UK PIMFA called on UK FCA to give firms further time to fully understand and implement the consultation's wide-ranging consumer duty proposals.
Proposed implementation period of nine months is insufficient and does not reflect the importance UK FCA has itself placed on the duty’s wider impact on financial services.
On Mar. 23, 2022, UK FCA spoke on priorities including consumer duty, see #132816.
In May 2022, UK FB considered impact of FCA duty on digital channels, see #139841.
