Simplifying the Consumer Duty

With a month remaining to respond to the FCA’s Call for Input on the “review of FCA requirements following the introduction of the Consumer Duty” (the Duty) there is a significant opportunity to gain insight and input for financial market participants, especially those operating in retail markets. This consultation comes at a crucial time following the introduction of the Consumer Duty, and its purpose is to refine the FCA’s regulatory approach to ensure flexibility, innovation, and consumer protection. The Call for Input highlights the following:

1. Consumer Duty at the Core: The Consumer Duty, introduced in 2023, sets high standards for financial firms in how they serve their retail customers. The Duty’s outcomes-focused approach allows firms flexibility in delivering good customer outcomes, while emphasising the importance of acting in good faith, avoiding foreseeable harm, and enabling consumers to achieve their financial objectives. This flexible approach provides room for innovation, making it ideal for firms looking to differentiate their offerings and therefore stay competitive, whilst staying compliant.
2. Balancing High-Level and Detailed Rules: While high-level rules under the Duty such as ‘to act in good faith toward retail customers” under the cross-cutting rules foster innovation and competition, there are situations where more detailed and prescriptive rules are necessary, such as the requirements of the Consumer Credit Act 1974. For example, certain areas of financial products, like mortgage disclosures or pension plans, may require more detailed rules to ensure transparency, consistency, and consumer understanding. The FCA is seeking feedback on the appropriate balance between these high-level and detailed requirements, depending on the context of the rules.
3. Supporting Market Integrity: The Consumer Duty supports market integrity by placing consumer interests at the core of financial firms’ business practices. This approach enhances trust and stability, which are critical for market competitiveness. For retail firms, the emphasis on customer care means that firms should not only focus on regulatory compliance but also ensure they are contributing to a reliable, transparent financial markets.
4. Flexibility for Innovation and Competition: The FCA aims to reduce complexity and allow for more flexible, high-level rules that encourage firms to innovate. This is particularly beneficial for smaller firms and new entrants, enabling them to grow their businesses while meeting regulatory expectations. The shift to a more outcomes-based approach also aligns with the secondary objective of improving the UK’s international competitiveness, making the financial services sector more attractive globally.
5. The Importance of Engagement: The FCA is actively seeking feedback from market participants, urging firms, industry bodies, and consumer groups to contribute to this Call for Input. The consultation will be open until 31 October 2024, with the results expected to shape the future of retail conduct regulation. Now is the time for financial market participants to engage in the conversation and provide their perspectives on an outcomes-based approach to regulation.

What’s Next?

The FCA’s review of retail conduct rules, anchored in the Consumer Duty, presents a unique opportunity for financial firms to influence regulatory changes that could simplify compliance, reduce costs, and foster innovation.

Objectivus has experience in dealing with the FCA and interpreting expectations from the FCA. We are well placed to assist firms in dealing with the Duty where issues or clarity is lacking. Feel free to reach out to use if you have any questions about the Duty or the Call for Input at info@objectivus.com.

For further guidance or to discuss how these changes affect your firm, please contact Bhavisha Patel at bp@objectivus.com or Robert Hudson at rfh@objectivus.com or call Objectivus at +44 (0)2034 573 283