Financial services firms will have a new duty to put consumers at the heart of what they do under plans set out by the City regulator.
The Financial Conduct Authority (FCA) said this will drive a culture change in firms, and senior managers will be held accountable.
Firms will have to provide consumers with information they can understand, offer products and service that are fit for purpose and provide helpful customer service.
Under the higher standards, consumers should find it as easy to switch, cancel and complain as it was to buy the product or service.
The FCA said it has previously seen firms presenting information in a way that exploits consumers’ behavioural biases, selling products or services that are not fit for purpose, or providing poor customer support.
Its 2020 financial lives survey found only 10% of consumers strongly agreed they had confidence in the UK financial services industry, with a further 32% slightly agreeing. Only 35% agreed firms are honest and transparent in their dealings with them.
The FCA is consulting on the plans until February 15 and expects to confirm any final rules by the end of July 2022.
The regulator said it will step in quickly when it identifies practices which do not deliver for consumers.
It said Parliament has also called strongly for a change to the standard of protection for consumers, and its publication meets the FCA’s obligations under the Financial Services Act 2021.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Making good financial decisions is vital to financial well-being and trust, but too often consumers are not given the information they need to make good decisions and are sold products or services that do not offer the benefits they might expect.
“We want to change that. We’ve been working to set a higher standard for firms, to put more of the onus on them to act in their customers’ interests and get their products and services right.
“The new duty will drive a change in culture at firms. We expect firms to step up and put consumers at the heart of what they do and we’ll be holding senior managers accountable if they do not.
“The duty will also help create an environment for healthy competition between firms, encouraging them to be innovative in developing products and services that meet consumers’ needs.”
Matthew Upton, director of policy at Citizens Advice said: “Consumers should always receive good service for a fair price. Yet too often we see firms willing to risk a tap on the shoulder from the FCA, rather than playing fair from the get-go.
“We welcome these proposals, which should make firms think twice before going against the best interests of their customers.
“The FCA has made it clear that it is ready to take action against firms where needed. The intention of the duty is that this won’t be necessary as often as we’ve seen in the past, but the real test will come in whether it is willing to do it when it matters.”
Peter Tutton, head of policy, research and public affairs at StepChange Debt Charity said: “The consumer duty, when it comes into force, will be something of a game-changer in terms of financial regulation.
“It will require firms to think beyond ticking a box to show they are treating customers fairly, and towards a far greater requirement to ensure that they are focused on delivering good outcomes for consumers and preventing harm.
“In a world of ongoing serious consumer debt problems, this is a really important distinction and a really meaningful change, especially for financially vulnerable consumers.”
Becky O’Connor, head of pensions and savings at Interactive Investor, said: “People’s financial wellbeing depends not just on the price they are paying, but accessing what they need when they need it.
“There is more to the suitability of a financial product than price: service is massively important but so is making sure that people are accessing the right products for their individual needs and are able to act if a product isn’t right.
“This is especially important for ‘big ticket’ financial products, like pensions, which by their nature can be with you for decades and for which you can pay a lot, over the years, whether you are getting a good standard of service, or the right kind of pension product for you, or not.”
Tom Selby, head of retirement policy at AJ Bell, said: “While the FCA is right to focus on boosting standards across the market, there also needs to be a credible enforcement threat against the minority of firms who consistently fail savers and investors.”
Charlotte Clark, director of regulation at the Association of British Insurers (ABI), said: “Looking after customers is our members’ top priority and we welcome today’s consultation.”
Register for free to continue reading
Registration is a free and easy way to support our truly independent journalism
By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists
Already have an account? sign in