FCA publishes final rules and guidance for new Consumer Duty

The Financial Conduct Authority (FCA) has published its final rules and guidance for a new Consumer Duty, the Financial Ombudsman Service said on 8 August 2022¹. The Duty sets higher and clearer standards of consumer protection across financial services and is made up of an overarching principle and rules that firms will have to follow¹.

The Ombudsman said the Duty comprises a Consumer Principle reflecting the overall standard of behaviour expected from firms, a set of cross-cutting rules, and four outcomes covering the governance of products and services, price and value, consumer understanding, and consumer support¹. The FCA sets out its expectations of firms in full in its published final guidance¹.

The Duty does not have retrospective effect and will not apply to past actions by firms¹. The FCA and the Financial Ombudsman agree that firms' conduct should be judged against the rules and standards in place at the time¹. The Ombudsman said its decisions always involve assessing what is fair and reasonable in the circumstances of each case, considering what happened against the law, rules, codes and good practice that applied at the time¹.

On timing, the industry body TISA said the FCA had allowed a 12-month implementation period for new business, with a deadline of July 2023, and an additional 12 months for legacy business above the initial period². TISA also said the FCA expects implementation plans to have board, or equivalent, approval by October 2022². The CCTA, an independent body, had earlier reported that the FCA planned to publish the policy statement by 31 July 2022 and expected firms to have the rules implemented by March 2023³; that March 2023 date differs from the July 2023 deadline TISA reported².

TISA said the FCA had clarified that compliance with the existing product governance rules under PROD will mean compliance with the Consumer Duty². It added that the FCA had not revisited the cost/benefit analysis, stating instead that the industry should record costs of implementation and ensure worthwhile benefits for the future independently, and that the FCA will consider the requirement of changes as part of a post-implementation review².

The lang cat, an independent consultancy, reported that the final wording of the overarching principle, that a firm "must act to deliver good outcomes for retail clients", was one of two options, the other being that a firm "must act in the best interests of retail clients"⁴. It said the concept of a private right of action was not included in the final rules, but that the FCA is keeping the option open if the current rules are not seen to be achieving the desired outcomes⁴. It also said the existing Treating Customers Fairly rules were widely criticised as being insufficiently robust to prevent conflicts of interest⁴.

Why it matters for households

The Duty applies to firms across financial services and sets the standard of care consumers can expect when dealing with them¹. It covers the governance of products and services, price and value, consumer understanding and consumer support¹. Because the Duty is not retrospective, complaints about events before it took effect are judged against the rules and standards that applied at the time¹. Firms were given until July 2023 for new business, with a further 12 months for legacy business, according to TISA². The Ombudsman said that where complaints have potential wider implications, it will share issues identified through its casework and the FCA will ensure the Ombudsman is aware of its expectations for firms¹. It also said it will share information about its approach through online case study examples and updated guidance for financial businesses¹.

What happens next

TISA reported that implementation plans were expected to have board, or equivalent, approval by October 2022². The FCA has said it will consider the requirement of changes as part of a post-implementation review². The Ombudsman said it is working with the regulator through the Wider Implications Framework to ensure a consistent and complementary approach to applying the Duty¹.