The Financial Conduct Authority (FCA) has said it plans for a new Consumer Duty which will set a higher level of consumer protection in retail financial markets.

Although financial institutions are already bound by FCA rules to treat customers fairly, the authority said that it has seen evidence of practices that cause “consumer harm.”

This includes firms providing information which is misleading or difficult for customers to understand, which can hinder their ability to effectively assess the product or service.

A 2020 survey from the financial watchdog found that a quarter of respondents lack confidence in the financial services industry, while only 35 per cent felt that firms are honest and transparent.

The regulator has proposed the expansion of existing rules to provide a higher level of protection for consumers.

The FCA said that the new Duty will drive a shift in culture and behaviour for firms, meaning that consumers always get products and services that are fit for purpose, that represent fair value and are clearly communicated and understandable.

“The package of measures we are proposing will enhance our existing rules and is designed to tackle the harms we see in financial services markets, and their causes, as well as put consumers in a stronger position to make good decisions,” said Sheldon Mills, executive director of consumers and competition at the FCA. “We want firms to be putting themselves in the shoes of consumers and asking ‘would I be happy to be treated in the way I treat my customers?’. We want consumers to be able to advance their financial wellbeing and build positive futures for themselves and their families.”

The new rules will be made up of three key elements:

1. The Consumer Principle, which will reflect the overall standards of behaviour the FCA expects from firms. The wording being consulted on is: 'a firm must act in the best interests of retail clients' or 'a firm must act to deliver good outcomes for retail clients'.
2. Cross-cutting rules which would require three key behaviours from firms, which include taking all reasonable steps to avoid foreseeable harm to customers, taking all reasonable steps to enable customers to pursue their financial objectives and to act in good faith.
3. It will also be underpinned by a suite of rules and guidance that set more detailed expectations for firm conduct in relation to four specific outcomes – communications, products and services, customer service and price and value.

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