The Financial Conduct Authority (FCA) has recently introduced new Consumer Duty rules.
This represents a huge shift for financial services firms as they must deliver ‘good outcomes’ for customers and avoid ‘foreseeable harm.’
The new rules apply to regulated firms offering retail customers products and services, including banks and insurers.
It applies to existing products and services from 31 July 2023 and will then apply to closed-book products from next year - but it is not retrospective, so it doesn’t apply to past actions by firms.
Financial firms must end rip-off charges and fees, make it easy to cancel or switch products and offer more helpful customer support.
Firms will need to provide clear information and the right products and services, as well as focus on customer needs, especially vulnerable customers, to avoid disciplinary action from the FCA.
The regulator says that firms need to deliver good outcomes for customers on:
- Products and services
- Price and value
- Consumer understanding
- Consumer support
What does this mean for me?
The new Consumer Duty rules aim to help people in various ways.
This includes how financial firms interact with customers, as the FCA wants firms to communicate clearly and more regularly with them.
So, for example, terms and conditions should be easier to understand, or if a product like insurance is soon to expire, the company should do more than just send a letter a month beforehand. Instead, firms might follow up again to remind someone to act before their deal ends.
The new rules also aim to make it easier to complain and cancel any products if a customer is unhappy.
Pricing is another important focus, as it needs to be fair for all. This could be helpful for the vulnerable and drive competition, which may result in a wider variety of products and pricing.
As the rules focus on how a product is designed for customers and whether it meets their needs to provide good outcomes, there’s a lower chance of mis-selling. This may also lead to innovation for financial products as firms hope to address customer needs more closely.
Finally, the FCA wants to eliminate barriers and excessive exit fees if someone decides to switch financial products. So, switching to a different product with another firm may become cheaper in the future.
The pros and cons of focusing on ‘good outcomes’
As the Consumer Duty focuses on ‘good outcomes,’ the impact can be both good and bad.
For example, some online-only savings accounts may now be opened in a branch or over the phone, as well as online, helping to improve accessibility.
The FCA is already using the new rules to challenge some banks with the lowest interest rates on their savings accounts by asking them to justify how these offer 'fair value' by the end of August - or face action.
But the new rules may be an issue regarding 0% credit cards, as the FCA says firms should not profit from ‘bad customer outcomes.’
What do they mean here? So, for example, if a customer misses a payment on a 0% credit card used to borrow without interest for a set period, they could be charged a fee or lose their offer, which would go against the new rules.
Research by Quilter has also revealed that some financial planners are concerned they might need to increase prices to maintain profitability due to the Consumer Duty rules.
While half of financial advisers expect their fees to be unchanged and 9% expect fees to fall, a third of advisers believe fees could increase.
