The Financial Conduct Authority (FCA) has introduced legislation that creates the new Consumer Duty. Financial institutions will be required to prioritize their customers' requirements and establish more transparent benchmarks for safeguarding consumers. Businesses are anticipated to uphold an elevated level of consumer service.
Starting from July 31, 2023, the updated obligation applies to both new and existing products available for purchase or renewal. For products or services that are no longer available, the regulations will take effect on July 31, 2024. The FCA has created a strategy that explains the outcomes they expect businesses to deliver, which can be found at www.fca.org.uk
The new duty requires businesses to deliver “good outcomes” for retail customers. This is in respect of the following four key outcomes.
Products and services.
Price and value.
The expectations for the financial services market for consumers are the following.
Consumers will receive fair prices and quality products.
Consumers will only be sold suitable products and services and receive good treatment.
Consumers are to have strong confidence and levels of participation in markets, there will be minimised harm where a business fails and minimised financial crime.
Diverse consumer needs are to be met through high operational resilience and low exclusion.
There are similar expectations in the wholesale market.
A new guideline for businesses has been introduced, which states that they must work to ensure positive results for their regular customers. Businesses are expected to behave in a responsible and appropriate manner. They should act honestly, prevent foreseeable harm, and support customers in achieving their financial goals. Customers should be treated fairly, and their concerns should be handled impartially. If needed, appropriate remedies should be offered.
It's important for businesses to communicate openly and clearly, helping customers comprehend any risks involved.
Whilst it is expected that consumers will take responsibility for their choices and decisions, the ability of consumers to take responsibility for their decisions may be limited, especially if they are in vulnerable circumstances. It cannot be expected that consumers will have the experience, knowledge or sophistication to understand financial services to the same extent as the providers of the financial service. Consequently, the nature of products needs to be clearly and transparently explained.
The FCA has found, in the past, that some businesses have presented information in a way that is misleading or difficult to understand. This has made it difficult for a consumer to make an informed decision. The new Consumer Duty expects information to be presented in a clear and transparent manner. Also, some products are sold that are not suitable for the consumer or do not offer fair value. Under the new Consumer Duty, businesses will be expected to assess the needs of the consumer and the suitability of the products offered and evidence the extent to which these products deliver good outcomes for the consumer and how the product does this.
The FCA has detailed how these overarching principles can be condensed into some specific changes and requirements. It has offered the following examples.
An end to rip-off fees and charges.
It should be as easy to switch or cancel products as it was to take out the product.
Improved customer support and reduced call centre wait times so customers do not ring off due to waiting so long.
The provision of clear information that consumers can understand so they can make good financial decisions. Key information is not to be buried in lengthy terms and conditions that consumers will not usually read.
The provision of products and services that are appropriate to the customer.
The business is to have a focus on the real and diverse needs of its customers, including those in vulnerable circumstances.
The new Customer Duty will affect:
regulated business involved in e-money and payments
consumer organisations and individual consumers
industry groups and trade bodies.
FCA strategy and expectations
The FCA wants to lessen and avoid significant problems for customers. They will study information to understand issues and take steps to avoid problems in advance. The FCA will work to prevent businesses that don't have proper measures from operating, and they will limit permissions so only FCA-approved businesses can promote financial products. If businesses are found to have insufficient measures, their FCA approvals can be taken away.
The FCA intends to set higher standards that regulated and authorised businesses will be required to meet. The FCA will expect that only suitable products will be sold to consumers and good standards of customer service will be provided. Whilst this appears obvious, it has been found that many businesses are not delivering as the FCA expects. Consequently, the new Consumer Duty will require businesses to consider the actual impact of their products and services on their customers.
The FCA will also promote competition and positive change. The FCA will aim to prevent unreasonable terms and conditions, increase customer satisfaction levels and prevent scams.
The new Consumer Duty is making it a legal obligation to offer good customer service and understand the customer's needs. Most of the demands are what people generally anticipate from a business. Yet, these new requirements are aimed at creating fair competition by preventing businesses with lower standards from entering or staying in the market. Although extra rules are usually not embraced, these regulations shouldn't heavily affect well-managed businesses. Instead, they should promote fairness in business practices, benefiting both consumers and well-operated businesses.
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