The FCA has published the final guidance for its new Consumer Duty rules, which are now set to come into force on 31 July 2023.

The regulator has stated that the new rules will “fundamentally improve how firms serve consumers” across the financial services sector.

When the Consumer Duty rules are applied, the FCA plans to set higher standards of consumer protection that put customers’ need first. The Duty is made up of an overarching principle and new rules that firms will have to follow, meaning consumers should receive communications they can understand, as well asproducts and services that meet their needs and offer fair value.

Consumer Duty rules form part of the FCA’s transformation to becoming a “more assertive and data-led regulator”, it has previously stated. With firms assessing how they’re meeting their customers’ needs, the FCA has suggested it would be able to quickly identify practices that don’t deliver the right outcomes for consumers, and take action “before practices become entrenched as market norms”.

FCA executive director of consumers and competition, Sheldon Mills, commented: “The current economic climate means it’s more important than ever that consumers are able to make good financial decisions. The financial services industry needs to give people the support and information they need and put their customers first.

“The Consumer Duty will lead to a major shift in financial services and will promote competition and growth based on high standards. As the Duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.”

The Duty will include requirements for firms to end rip-off charges and fees, make it easier to switch or cancel products, and provide more accessible customer support. The rules also stress a need for firms to provide timely information to consumers about products and services so they can make better informed financial decisions.

Firms have been given 12 months by the FCA to implement the new rules for all new and existing products and services that are currently on sale. The rules will be extended to closed book products for another 12 months, to give firms more time to bring older products, that are no longer on sale, up to the new standards.

Reacting to the FCA’s policy statement, head of public affairs at PIMFA, Simon Harrington, said the Consumer Duty has the potential to be a “transformative piece of regulation”.

“For that to be the case, as we have previously argued, firms need more time to implement the new regulations,” Harrington said. We welcome the fact that the FCA has now recognised that such a transformative piece of regulation does indeed require additional time for firms to implement new systems and processes to comply with it.

“The decision to extend the implementation of the Consumer Duty to 12 months for new and existing policies, and then another 12 months for closed books, is broadly in keeping with our recommendations to the FCA.

“We are pleased the regulator has listened to the industry and demonstrated a willingness to work with us to ensure this new regulation works well from the very beginning. Our focus now will be on supporting firms to implement the Duty.”

One the rules are in effect next year, AJ Bell head of retirement policy, Tom Selby, highlighted that a challenge facing the FCA will be to ensure there is a “credible threat of enforcement” for firms that fail to meet its expectations.

“The inconvenient truth is that ‘good’ firms are likely to already be meeting much of the regulator’s new expectations, while ‘bad’ firms are often flouting the existing rules,” Selby added. “To raise the laggards up to the standard of ‘good’ firms, the FCA will need to demonstrate ‘bad’ firms will be punished.

“The Financial Ombudsman Service (FOS) will also play a critical role in interpreting the Consumer Duty on the ground. There is a very real risk that spurious complaints will be made against firms by Claims Management Companies (CMCs) looking to take advantage of the new standard.

“The regulator will need to watch CMCs like a hawk and come down hard on any dodgy behaviour.”

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