UK FCA Enforcement Watch 2: the consumer duty

The UK Financial Conduct Authority (FCA) has published its second edition of its Enforcement Watch newsletter, explaining how it is using supervision and enforcement to drive compliance with the consumer duty. The FCA notes that nearly three years after the duty's implementation, it has opened 11 investigations into potential breaches, up from six reported in the first edition. These investigations span the insurance, pensions, wealth management, consumer investments, peer-to-peer lending and claims management sectors.

The FCA uses this edition to help shine a light on the threshold between assertive supervision (intervening where concerns are identified) and taking enforcement action. The FCA states that where interventions are sufficient to address the harm, there may be no need for a formal enforcement investigation.

A key focus of the FCA's 11 open investigations is whether consumers received fair value in accordance with the FCA's Handbook rules and the consumer duty. The FCA emphasises that fair value is not solely a question of price; products that fail to meet customer needs, cause foreseeable harm or provide little meaningful benefit are unlikely to represent fair value. Given the overlap between the duty's outcomes, the FCA may also examine whether products were designed for an appropriate target market, met that market's needs, were communicated clearly to consumers throughout the product lifecycle, and consumers were given support when issues arose.

The FCA also outlines the types of investigations it has opened and notes that it has "taken the unusual step" of publicly announcing two investigations in the motor finance claims sector to enable affected customers to consider their options, including whether to complain. The FCA expects firms to maintain high standards, proactively identify and prevent consumer harm, and demonstrate good consumer outcomes. While the FCA will work pragmatically with firms that do the right thing, it emphasises that it will take enforcement action where necessary.

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