UK Conduct Regulator Publishes Feedback and Further Consultation on New Consumer Duty12/01/2021The U.K. Financial Conduct Authority has published feedback and a further consultation on its new proposed Consumer Duty. The FCA's previous consultation was published in May 2021 and set out the FCA's proposed rules for a new duty of care that firms would owe to retail clients when conducting regulated activities. The proposed duty will consist of an overarching Consumer Principle, three cross-cutting rules and four outcomes that firms should aim to achieve when conducting regulated activities. The latest consultation responds to feedback received on the original consultation and seeks input on the FCA's proposed final version of the rules.
Feedback received from respondents to the FCA's original consultation included:
- Suggestions for additional harms that the Consumer Duty could address e.g., vulnerable customers receiving worse outcomes than other customers, the increasing complexity of financial products and fraud or identity theft. The FCA agreed with these proposals.
- Different definitions of "retail clients" to whom the duty would apply. The FCA had originally proposed to include natural persons as well as small and medium sized enterprises within the scope of retail clients. In response to the feedback received, the FCA determined that the scope of the Consumer Duty should vary according to industry and should align with the existing scope of relevant sector sourcebooks, e.g., the Consumer Duty for the insurance sector would adopt the position in the Insurance Conduct of Business Sourcebook. The duty will apply to high-net-worth individuals provided that the relevant services are within the regulatory perimeter, and will also apply to prospective customers (e.g., in the case of financial promotions).
- The need for proportionality in application of the duty, to avoid firms being held responsible for those elsewhere in the distribution chain, and a call for wholesale transactions to be out of scope of the duty. The FCA clarified that the duty would apply proportionately, and firms would generally only be responsible for their own activities, not those elsewhere in the distribution chain. The FCA maintained that firms with a material influence over the design of, distribution of or issuance of communications relating to retail products would be captured by the duty, but the issuance of non-complex and non-retail financial products would be excluded.
The FCA has determined that the Consumer Duty does not constitute a legally enforceable duty of care but does represent a higher standard of care over and above that demanded by the FCA's existing Principles and rules. The Consumer Duty will not give rise to a private right of action at this time. Typically, a private right of action for damages would be available for a breach of FCA rules, but not for Principles for Business. The Consumer Duty is an unusual case because it comprises both a Principle and rules. The FCA has decided that no private right of action should exist for the Consumer Duty initially, at least until firms have had the opportunity to understand and embed the new rules. It will keep the possibility of a private right of action under review. In the meantime, consumers will only be able to rely on existing obligations under the FCA Handbook DISP rules that firms must investigate complaints competently and diligently and the option to refer complaints to the Financial Ombudsman if consumers are unhappy with a firm's resolution of their complaint. The FCA also anticipates that the duty would apply to both regulated activities and unregulated activities that are ancillary to regulated activities. The duty would not apply retrospectively but would apply to existing products or services on a forward-looking basis, once introduced.
The FCA has determined that the overarching Consumer Principle should be "A firm must act to deliver good outcomes for retail clients". The FCA is proposing to take make certain amendments to the proposed cross-cutting rules and four outcomes to clarify its expectations. It also plans to amend the Senior Managers and Certification Regime to reflect the higher standard of responsibility for retail clients imposed by the Consumer Duty.
Responses to the consultation should be submitted by February 15, 2022. The FCA plans to introduce its new rules by July 31, 2022 and firms would have until April 30, 2023 to fully implement the duty.
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