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Financial Regulatory Developments Focus
  • UK Financial Conduct Authority Consults on New Consumer Duty 

    The U.K. Financial Conduct Authority has launched a consultation on proposed rules for a new duty of care that firms would owe to retail clients when conducting regulated activities. The duty would apply to authorized firms directly providing regulated services to retail clients but would also extend to other authorized firms involved in the supply and manufacture of regulated products, even where they have no direct contact with the end client. The FCA has been mandated to consult on the duty under the Financial Services Act 2021. The FSA 2021 implements changes to various aspects of U.K. financial services regulation following the U.K.'s exit from the EU. Responses to the consultation on the new consumer duty are due by July 31, 2021. The FCA must consult and publish an analysis of responses before January 1, 2022 and make general rules before August 1, 2022.

    The proposed duty would apply where a firm, when conducting regulated activities, can influence material aspects of the design, target market or performance of a product or service that will be used by consumers. It is split into an overarching Principle, three cross-cutting rules and four outcomes, as follows:
    1. The Principle has been proposed to be either, "A firm must act to deliver good outcomes for retail clients" or "A firm must act in the best interests of retail clients".
    2. The cross-cutting rules require firms to:
    a) take all reasonable steps to avoid causing foreseeable harm to customers;
    b) take all reasonable steps to enable customers to pursue their financial objectives; and
    c) act in good faith. 
    3. The four outcomes are a series of goals that firms should aim to achieve when conducting regulated activities, and relate to: 

    a) A firm's communications, which should enable consumers to make effective, informed decisions about financial products and services. Firms would be expected to review and, where appropriate, test and adapt communications to show they have taken reasonable steps to comply with the outcome. 
    b) A firm's products and services, which should be designed to meet the needs of consumers and sold to those whose needs they meet. Firms would need to take various actions at the manufacture, distribution and monitoring stages (e.g., designing the product appropriately, ensuring products and services are distributed to the target market and monitoring their products and services to ensure they remain consistent with the target market and deliver the expected outcomes). 
    c) Customer service, which should meet the needs of consumers and enable them to realize the benefits of products and services. Firms would need to design customer service processes appropriately and monitor the performance of those processes, regularly reviewing them to ensure they remain fit for purpose 
    d) The price of products and services, which should represent fair value for customers. Firms should assess the pricing at the design stage and then actively assess the value of their products and services throughout their life. 

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