By Pooja Bokhiria

On 14 May 2021, the Financial Conduct Authority (“FCA”) published a consultation paper (CP21/13) on a new ‘Consumer Duty’, with the aim of increasing consumer protection in retail financial markets.

The new rules apply to firms’ regulated activities and to products and services sold to retail clients. This includes all clients other than professional clients, such as government bodies, and eligible counterparties. It also extends to firms involved in the manufacture of products and services to retail clients even if they have no direct relationship with the end customer.

The Consumer Duty, would, in practice, require firms to:

  • ask themselves what outcomes consumers should be able to expect from their products and services;
  • act to enable rather than hinder these outcomes; and
  • assess the effectiveness of their actions.

The consumer duty would be comprised of the following three elements:

  1. A new consumer principle: the FCA is consulting on two options that are intended to set a clear tone and use language that reflects the overall standards of behaviour the FCA expects from firms. The two options are 'A firm must act to deliver good outcomes for retail clients’ and 'A firm must act in the best interests of retail clients’
  2. Cross cutting rules: which develop and clarify the consumer principle’s overarching expectations of firm conduct, and set out how it should apply in practice. These would set out the key behaviours required by the Consumer Duty and make clear that the consumer principle requires firms to (a) act in good faith, (b) take all reasonable steps to avoid harm to consumers and (c) take all reasonable steps to enable consumers to pursue their financial objectives.
  3. Four Outcomes: these would comprise of a suite of rules and guidance that set more detailed expectations for firm conduct in relation to 4 specific outcomes for the key elements of the firm-customer relationship. The Four Outcomes would build on the consumer principle and the cross-cutting rules and comprise of outcomes relating to communications, products and services, customer service and, finally, price and value.

Firms that fail to adhere to the new consumer duty would face regulatory action. The FCA is also welcoming views on the potential introduction of a private right of action for breaches, the arguments for and against which have been included in CP21/13.

The consultation closes on 31 July 2021, following which, the FCA expects to publish a second consultation by 31 December 2021 with a view to making any new rules by 31 July 2022. For further information, a copy of the consultation can be found here.