The FCA has recently published its Feedback Statement FS19/2 ("A duty of care and potential alternative approaches"). This provides feedback on the FCA's discussion proposal to impose a duty of care on regulated firms towards consumers. The FCA reviews the arguments for such a dutyand asks if it would help strengthen the accountability of regulated firms towards consumers.
Those in favour of such a duty argue that it would:-
- reduce harm to consumers. An express duty to avoid harm, would incentivise firms to anticipate and evaluate the prospects of harm to consumers;
- create a baseline for regulators for assessing new and emerging types of harm;
- provide clarity on the standard of care consumers can expect;
- support longer term cultural change. A clear overarching standard of care would create a benchmark against which firms could test proposed actions-" is this right?".
The FCA summarises the options which it is considering in the Feedback Statement.
Statutory Duty of Care
An argument in favour of the creation of a statutory duty of care, is that it would set out a clear standard of conduct expected of firms. This would provide a benchmark or framework against which firms could test actions. A legislative framework for the duty would help motivate firms to put consumers at the heart of their businesses. As a result, such a duty would help drive cultural change and create greater clarity for consumers as to what they can expect of a firm.
One anticipated benefit of the introduction of a statutory duty,is the expectation that as a result consumers would have the right to take direct legal action against firms if they fail to meet the duty.
However the statutory of care did not find favour from most respondents. There were concerns about:-
- one duty not fitting all circumstances;
- the overlap with the existing regulatory regime, causing confusion;
- the practicality of litigation as a remedy for consumers, including the costs, delay and stress;
- the loss of regulatory flexibility as decision making would be ceded to the Courts which is a slower process;
- courts being slow to develop precedent;
- increased costs on firms.
Revisions to the FCA's Principles for Businesses
Another proposal is to create greater clarity in the FCA's Principles for Businesses as to a firm's duty to consumers. The current THF principle (Treating Customers Fairly) which forms part of the Principles for Businesses, is considered too vague. Fairness is a difficult concept to benchmark and perhaps as a result, this principle not been enforced rigorously enough. A renewed focus on a clear statement of principle(s) to act in a consumer's best interests and avoid harm, coupled with a renewed regulatory engagement, would reframe the expectations of firms.
Private right of action for damages for breach of Principles
Such a right might help consumers to enforce their rights. However the same problems would arise as noted above in the case of enforcement of a statutory duty of care. Access to the Financial Ombudsman Service is significantly more consumer friendly and cheaper, particularly with increased limits for compensation. Arguably there is no need for a statutory right of action. Some respondents did though argue that there is merit in providing as many avenues of redress as possible.
How the FCA approaches enforcement
The FCA notes that as part of this exercise criticism has been made of its approach to enforcement. The approach to regulation is prescriptive, rules based and tick-box and not enough focus is given to principles based fair outcomes for consumers. The FCA should have greater appetite for action based on a broader application of the Principles. There is also a desire for greater transparency as to the FCA's expectations.
Based on the Feedback Statement, there are a number of issues to consider. The FCA is conscious that securing protection for consumers is at the heart of what it does but any changes need to be effective. The FCA has focused on the following points from the exercise:-
- a renewed focus on how it applies the regulatory framework. Particularly on how the FCA applies the Principles for Business in its authorisation, supervisory and enforcement functions;
- new and revised principles to strengthen and clarify duties to consumers with the potential, and no more at this stage, for some private right of action to enforce.
The FCA seems to be less enthusiastic about a statutory duty of care as it seems unconvinced that this would improve matters.
The FCA is promising further proposals in the autumn on how they will take the options forward.