Earlier this month the FCA published its feedback to CP21/13 and further consultation on the new Consumer Duty which it proposes to see fully implemented by firms by 30 April 2023.  At 243 pages including draft Handbook text and non-Handbook Guidance for firms it is a long read so we have set out below 10 key points firms need to be aware of.

1. Consumer Duty structure and scope

    There is no change to the 3-part structure of the Consumer Duty proposed in CP21/13. There is:

    • a Consumer Principle (a new Principle 12) reflecting the overall standards of behaviour the FCA wants from firms.
    • Cross-cutting rules which develop the FCA's overarching expectations applying across all areas of firm conduct.
    • Four outcomes which give more detailed expectations for the key components of the firm-consumer relationship.

    The Consumer Duty applies to firms' regulated activities and ancillary activities.

    The definition of retail customer aligns with the scope of the FCA Handbook in each sector.

    2. The Consumer Principle: A firm must act to deliver good outcomes for retail customers

      This formulation was preferred over the alternative option requiring firms to 'act in the best interests' of retail customers, and reflects the shift of focus on consumer outcomes and putting consumers in a position where they can act and make decisions in their own interests.

      3. Consumer Duty and Principles 6 and 7

        Given the overlap between the new, higher standard set by the Consumer Duty and Principles 6 (firms to pay due regard to their customers' interests and treat them fairly) and 7 (firms to pay due regard to their clients' information needs and communicate with them in a clear, fair and not misleading way), Principles 6 and 7 will be disapplied where the Consumer Duty applies. So, Principles 6 and 7 will continue to apply to conduct outside the scope of the Consumer Duty, for example in relation to certain SMEs.

        4. Cross-cutting rules

          The cross-cutting rules are that firms must:

          • act in good faith towards retail customers. This is unchanged from CP 21/13 but to address concerns expressed in responses to CP21/13 the Guidance clarifies that the FCA rules do not create a fiduciary relationship where one does not otherwise exist, nor do they require advice to be provided where it would not have otherwise been required.
          • avoid foreseeable harm to retail customers. The onerous CP21/13 formulation requiring firms to 'take all reasonable steps' has been changed so the focus is on outcomes rather than on steps taken and compliance with rules, but the potential uncertainty of the concept of foreseeable harm remains.
          • enable and support retail customers to pursue their financial objectives. The reference to support is new and designed to focus on the need for firms to support consumers to make effective choices for themselves and enjoy the use of the product and service they have purchased. The Guidance clarifies that a firm providing an execution only or non-advised service can assume their customers’ objective to be the enjoyment and use of the product and service they have purchased (unless it knows or could reasonably be expected to have known otherwise).

          5. Vulnerable customers

            No additional cross-cutting rule focused on consumers in vulnerable circumstances is proposed. Instead, the needs of vulnerable customers' at every stage of the customer journey are embedded in the draft rules, which are intended to be consistent with the FCA's guidance for firms on the fair treatment of vulnerable customers.

            The FCA is seeking views on whether diversity and inclusion should be more explicitly referenced within the components of the Customer Duty and whether further rules or guidance on the interaction between diversity characteristics and the FCA's vulnerability definition might be useful to firms to give more clarity around the characteristics needing additional consideration.

            6. The products and services outcome

              In order for firms to deliver good outcomes to consumers, the aim is for all products and services for retail customers to be fit for purpose, designed to meet consumers’ needs and targeted at those consumers. Different requirements apply to manufacturers (eg designers, developers, underwriters) from distributors (firms that offer, sell, recommend, advise on, propose or provide a product or service).

              7. The price and value outcome

                All customers are to receive fair value, and fair value is not just about price. The focus of the rules around this outcome is on the relationship between the price the consumer pays for, and the overall benefits they can reasonably expect to get from, a product. The FCA does not intend to set prices, and not all customers need to be charged the same price; there is, for example, no prohibition on differential pricing between new and existing customers in the form of clear, transparent up-front discounts for new customers.

                8. The consumer understanding outcome

                  The FCA wants firms' communications to support and enable consumers to make informed decisions about financial products and services. Consumers need to be given the information they need, at the right time, and presented in a way they can understand. In CP21/13 this was badged the 'communications' outcome but has been renamed to emphasise the outcomes the FCA wants firms to focus on, and so goes beyond the communications-focused Principle 7.

                  The outcome does not require firms not authorised to give advice, or firms acting on a non-advised basis, to give customers advice.

                  9. The consumer support outcome

                    Badged the ‘customer service’ outcome in CP21/13 this has also been renamed to focus on the outcome - supporting consumers' needs so they can realise the benefits of the products and services and pursue their financial objectives - which applies throughout the customer journey.

                    10. No private right of action

                      The FCA is proposing not to provide a private right of action for breaches of any part of the Consumer Duty, but it is keeping the issue under review. The Consumer Duty will be a key part of how the FCA supervises and takes enforcement action to deliver outcomes for consumers; the Consumer Duty will be integral to the FCA's authorisation, supervision, policy and enforcement processes.

                      Comments on the Consultation can be made until 15 February 2022.


                      Lindsay Lee

                      Senior Associate