The Consumer Duty – What the FCA Wants

As is well known, the FCA’s Consumer Duty obligations went live on 31st July 2023 with regard to open products and services.  The Consumer Duty will now extend to closed products and services from the 31st July 2024. 

The FCA has a statutory operational objective to protect consumers and the Consumer Duty is about firms being required to put consumers front and centre.  The FCA has wanted to set out its objectives and desired outcomes in this respect.  In this article, the terms “customer” and “consumer” have been used interchangeably. 

The starting point is the Consumer Duty itself, as enshrined in PRIN 2A of the FCA Handbook, but firms should also pay attention to two recent publications from the FCA: “Consumer Duty Implementation:  Good Practice and Areas for Improvement” (20th February 2024); and “Our Approach to Consumers” (19th March 2024).

The four basic retail customer outcomes demanded by the Consumer Duty are: 

• products and services – products must be fit for purpose and designed to meet the needs of consumers;

• price and value – products must provide fair value to consumers; 

• consumer understanding – firms must support consumer understanding by means of communications which meet consumers’ information needs in an understandable way and enable them to make effective, timely and properly informed decisions; and

• consumer support – firms must provide support to consumers which meet their needs, and enable them to use a product as anticipated and to communicate with the firm during the life of the product.

The 20th February paper on Consumer Duty implementation followed a review of firms’ efforts over the first few months of the new regime.  It set out a number of desired outcomes for the benefit of consumers which are a development of the four basic outcomes, as set out above: 

• culture, governance, and monitoring - the FCA would like consumers to have confidence in retail financial services markets, with healthy competition based on high standards and firms focused on delivering good customer outcomes.

• consumers in vulnerable circumstances - the FCA would like such consumers to have outcomes as good as other consumers.

• products and services - the FCA would like consumers to be sold products and services that are designed to meet their needs, characteristics, and objectives. 

• price and value - the FCA would like consumers to receive products and services which offer a fair value.

• consumer understanding and support - the FCA would like consumers to understand the information they are given and make timely and informed decisions and to be provided with support that meets their needs.

In the new paper the words differ from the four basic outcomes, as set out above, but the direction of travel is the same – the customer is at the centre.

The 19th March paper on the FCA’s approach to consumers creates a wider approach.  It does reference the Consumer Duty but it has included additional material on consumer vulnerability (cross referencing the FCA’s 2021 “Guidance for Firms on the Fair Treatment of Vulnerable Customers”); access and financial inclusion (here the FCA noted the need for it to work with government, firms and consumers to improve this); in relation to consumer communications the FCA stated that “customers must be given the information they need, presented in a way they can understand”; and there is a need for a strong consumer complaints and redress framework.

What does the FCA want?  The 19th March paper set out four overarching outcomes which the FCA expect from financial services, which cut across all the markets and sectors it regulates:

• fair value - consumers should receive fair prices and quality;

• suitability and treatment - consumers should be sold suitable products and services and receive good treatment;

• confidence - consumers should have strong confidence and levels of participation in markets, in particular through minimised harm when firms fail and reduced financial crime; and

• access - diverse consumer needs should be met through high operational resilience and low exclusion.

There is clearly significant overlap across Consumer Duty implemented by PRIN 2A and the material in the two recent papers, but there are some differences of emphasis.  The key common theme is the need to offer products and services which do the job for the customer and offer fair value (this could be a restatement of the original Principle 6 that firms must pay due regard to the interests of their customers and treat them fairly).

Firms might do well to treat PRIN 2A as their starting point – it does, after all, set out the black letter rules – while also having regard to the two recent papers and in particular the FCA’s desired outcomes as detailed in them.

The fundamental point is, of course, that the FCA expects firms to put consumers front and centre, per the FCA’s objective mentioned at the beginning of this article.  Firms ignore that at their peril.