The FCA has developed a new set of rules to establish a higher standard that firms must provide consumers. This new regime follows two consultations and has created rules that must be complied with by July 2023 for open products and services and July 2024 for closed book products, along with specific interim deadlines.

The Consumer Duty will apply to firms who have retail customers and also firms which form part of a distribution chain – ie all firms involved in the manufacture, provision, sale and ongoing administration and management of a product or service to the end retail customer. Importantly, this means that the scope of the Duty applies to those firms who do not necessarily have a direct contractual relationship with the retail customer.

What is the Consumer Duty?

The Consumer Duty forms part of the FCA's attempt to becoming a “more assertive and data-led regulator” and is made up of an overarching principle and new rules firms will have to follow.

The Consumer Duty comprises:

• A new Consumer Principle;
• Cross-cutting rules providing greater clarity on the FCA’s expectations under the new Principle and helping firms interpret the four outcomes; and
• Four outcomes the FCA want to see under the Consumer Duty.

The new Consumer Principle requires that a firm must act to deliver good outcomes for retail clients.

The cross-cutting rules require firms to:

• act in good faith;
• avoid foreseeable harm to customers; and
• enable customers to pursue their financial objectives.

The new outcomes represent key elements of the firm-consumer relationship:

• products and services – all products and services for consumers should be fit for purpose and “designed to meet the needs, characteristics and objectives of a target group of customers”;
• price and value – the FCA states that they “want firms to assess their products and services in the round to ensure there is a reasonable relationship between the price paid for a product or service and the overall benefit a consumer receives from it”;
• consumer understanding – this focuses on communications between firms and consumers and aims to ensure “communications to support and enable consumers to make informed decisions about financial products and services”; and
• consumer support – this outcome requires a firm to provide a “level of support that meets consumers’ needs throughout their relationship with the firm. This means firms’ customer service should enable consumers to realise the benefits of the products and services they buy and ensure they are supported when they want to pursue their financial objectives”.

Guidance on the components of the Consumer Duty can be found in the FCA’s Policy Statement and non-Handbook Guidance.

What do I need to do?

For many firms, the implementation of the Consumer Duty will merely be the continuing of their existing customer-focussed approach to business.

For others, a more comprehensive analysis may need to be conducted ensuring that they consider the consumer perspective at every step of their business. This may be particularly relevant to firms further up the distribution chain who may now be required to consider their responsibility to end-users.

Firms should be reassured that they are only responsible for their own activities – firms are not required to monitor or enforce compliance throughout their supply chains (unless there are regulatory or contractual requirements). However, if a firm becomes aware that another firm within its supply chain is not complying with the Consumer Duty, the firm is responsible to notify other firms and the FCA if they think it has caused harm to retail customers.

The new Consumer Duty rules also cannot be delegated, including where there are outsourcing or third-party arrangements. Therefore, firms must make sure that they have systems and controls in place to ensure their own compliance.

The FCA has suggested a stepped process for firms’ management to approve implementation plans (October 2022), manufacturers to review existing open products and services and to share this with their distributors (April 2023) and identify and make changes (July 2023).

Conclusion

Firms should be reassured that the Duty will not apply retrospectively but many will have work to do to ensure they implement or adapt their policies and systems to comply with the Consumer Duty by the time it comes into force.

Whether the new regime will be the “major shift” that the FCA hopes for remains to be seen but what is more certain is that this is a significant step in the FCA’s attempts to set higher and clearer standards of consumer protection.​​​​​​