Consumer Duty: FCA Call for Input

The Financial Conduct Authority (“FCA”) in July 2024 published a Call for Input to assess the impact of the Consumer Duty rules on businesses and consumers and to understand how they can simplify its requirements without compromising consumer protection.

Background

The Consumer Duty was introduced as part of the FCA’s statutory objective to “secure an appropriate degree of protection for consumers”. In summary, the Consumer Duty can be divided into three main parts:

1. Principle 12 which requires firms to “act to deliver good outcomes for retail customers”.
2. Cross-cutting rules which require firms to:
   1. act in good faith toward retail customers
   2. avoid causing foreseeable harm to retail customers
   3. enable and support retail customers to pursue their financial objectives
3. Four Outcomes which require firms to deliver good outcomes for retail customers across the following areas:
   1. the governance of products and services
   2. price and value
   3. consumer understanding
   4. consumer support

Purpose of the Call for Input

The FCA is inviting comments on the following issues:

1. Which detailed rules could be simplified to rely on high-level rules? The FCA is looking to:
   1. simplify its handbook by identifying and removing rules which overlap with the Consumer Duty;
   2. favour high-level standards over detailed rules which can foster flexibility, encourage innovation and new entrants in the market, ultimately for the benefit of consumers;
   3. clarify how requirements under the Consumer Duty interact with other rules which could help reduce regulatory uncertainty and compliance costs for firms.
2. How simplifying any rules could affect the statutory objectives of the FCA? These are:
   1. Consumer Protection – The Call for Input is seeking to inform the FCA’s approach towards the Consumer Duty requirements.
   2. Competition – The FCA understands that smaller firms and new entrants benefit more from simplified, clearly written rules when looking to expand their businesses. As such, they would like to assess what Consumer Duty requirements could be simplified which adversely affect competition.
   3. Market Integrity – The Consumer Duty promotes market integrity as firms focus on protecting consumers’ interests, fostering a culture of identifying and managing conflicts of interest, and ensuring the orderly resolution and return of client assets. The FCA is interested to know if there is anything else they could do to support this objective.
   4. Secondary international competitiveness and growth objective – By reducing the complexity of rules and relying more on high-level standards under the Consumer Duty, firms could reduce regulatory costs, attracting more financial services firms to the UK market.
3. How to ensure the right balance between high-level rules and more detailed rules? The FCA is seeking views to understand whether it is more appropriate to rely on high-level rules under the Consumer Duty, more detailed rules or a hybrid approach with both high-level and detailed rules.
4. What would be the benefits and costs from simplifying the rules? The FCA is aware that simplifying or changing the rules could lead to an increase in compliance costs for firms. Regulatory changes also impact different types and sizes of firms in different ways. For example, small firms may not have the compliance resources of a larger firm to understand and adapt to simplified rules. Therefore, the FCA is seeking more information on the main costs and benefits of making changes to its handbook as well as whether any high-level or detailed expectations could have differing costs or benefits depending on the type and size of the firm.

How to Respond

All comments must be submitted by 31 October 2024 using the form on the FCA’s website.

Alternatively, comments can be submitted in writing to:

Consumer Policy and Outcomes Financial Conduct Authority 12 Endeavour Square London E20 1JN

Or via email: ReviewOfRequirementsCFI@fca.org.uk

How can Complyport Help?

As experienced regulatory consultants, Complyport can assist firms in understanding the Consumer Duty requirements and establishing relevant policies and procedures. We offer tailored support to ensure compliance and help firms navigate the complexities of the regulatory environment.

Contact our dedicated team of Authorisation Consultants for guidance and support.

Complete the form below to book a FREE consultation.

Ask ViCA, your Virtual Compliance Assistant. Claim your complimentary 20 queries today!