The FCA is consulting for a second time on proposals to set a higher standard of protection in retail financial markets through the implementation of a Consumer Duty. This is in line with the FCA's 2021/22 Business Plan, which sets out improving consumer outcomes through a new Consumer Duty as one of its five consumer priorities. 

Whilst the FCA appreciates that there is a range of good practice by firms in the retail sector, unfortunately it also sees firms that are not consistently and sufficiently prioritising good consumer outcomes, causing consumer harm and eroding consumer trust.

In light of the feedback it received on the initial consultation, the FCA has revised its initial high-level proposals.

What is the new Consumer Duty?

The FCA's first consultation established the idea of a consumer principle that would act as an overarching standard of conduct, setting expectations for firms' cultures and behaviour. The consumer principle would be supported by a set of cross-cutting rules and outcomes that would set clear expectations for firms' cultures and behaviours. 

Amendments suggested by the FCA as a result of the first consultation

In the initial consultation, the FCA consulted on two options for the wording of the new Principle:

  • Option 1: A firm must act to deliver good outcomes for retail clients
  • Option 2: A firm must act in the best interests of retail clients.

Following feedback, the FCA proposes Option 1, as there was a risk that Option 2 could be misinterpreted as imposing a fiduciary duty on firms.

As a result of responses to the first consultation, the FCA has also made some amendments to the cross cutting rules. Initially, the proposed rules required firms to act in good faith towards retail customers and to take all reasonable steps to avoid causing foreseeable harm to retail customers and to enable customers to fulfil their financial objectives. Responses to the FCA raised the fact that taking all reasonable steps would lead to a process driven approach, with firms seeking to focus on compliance rather than ensuring good outcomes. Therefore, the "all reasonable steps£ standard has been removed.

Acknowledging the strong concerns of many industry respondents about its potential impact and possible unintended consequences, the FCA also now proposes not to introduce a private right of action for breaches of the Consumer Duty.  It believes that the industry should be given adequate time to embed the consumer principle and will keep the possibility of a private right of action under review, including in light of whether it sees firms embedding and complying with the Customer Duty.

FCA Handbook Rules and Guidance

The second consultation includes draft Handbook rules setting out examples of behaviour that would be likely or unlikely to satisfy the Consumer Duty as well as non-Handbook guidance to help firms comply with the proposed obligations. Firms should note that these examples are not a complete list of how firms should act and the FCA expects the Consumer Duty to apply differently across all regulated retail sectors.

Next steps

The FCA would like to hear views via its online form on the revised proposals and non-handbook guidance by 15 February 2022. It expects to publish a policy statement summarising the responses and making new rules by 31 July 2022.