Final Consumer Duty rules set to be introduced

The Financial Conduct Authority (FCA) was set to introduce its final Consumer Duty rules by 1 August 2022, according to an outline of the consultation timetable¹. The duty was consulted on in May 2021 through consultation paper CP21/13, which set out higher expectations for the standard of care that firms provide to consumers¹.

The FCA invited feedback on that consultation paper by 31 July 2021, and then expected to consult again on the proposed rule changes by 31 December 2021, ahead of the final rules¹. The regulator said the proposals would significantly raise the expectations placed on firms in terms of monitoring and increasing standards to create better customer outcomes, and that responsibility for "accountable individuals" would increase too¹.

The Consumer Duty as consulted on consisted of three elements: a consumer principle, cross-cutting rules and four outcomes¹. The consumer principle was consulted on in two possible wordings: "A firm must act to deliver good outcomes for retail clients" or "A firm must act in the best interests of retail clients"¹. The cross-cutting rules set out how firms should conduct themselves in practice, including taking all reasonable steps to avoid foreseeable harm to consumers, taking all reasonable steps to enable consumers to pursue their financial objectives, and acting in good faith¹.

The four outcomes set more detailed expectations for firms in relation to key elements of the firm-customer relationship: communications, products and services, customer service, and price and value¹. The FCA said consumers' ability to make good decisions can be affected by factors including a weaker bargaining position, irregularities of information, lack of understanding or behavioural biases, and that these factors can be intensified when customers are vulnerable¹.

The Consumer Duty followed the FCA's earlier Treating Customers Fairly rules, which the new requirements were intended to build on and extend¹.

Why it matters for households

The duty applies to the standard of care firms give consumers in retail financial markets, so it covers the firms households deal with for products such as current accounts, savings, mortgages, credit, insurance and pensions¹. The rules as consulted on would require firms to ask what outcomes consumers should be able to expect from their products and services, act to enable rather than hinder those outcomes, and assess the effectiveness of their actions¹. The FCA said the changes would likely require a significant shift in both culture and behaviour at firms¹. The final rules were set to be introduced by 1 August 2022, so any change in what households experience in practice would follow that date¹. The FCA's stated aim was to place greater pressure on firms to introduce a higher level of consumer protection in retail financial markets¹.

What happens next

The consultation closed to feedback on 31 July 2021¹. The FCA then expected to consult again on the proposed rule changes by 31 December 2021, with the final rules set to be introduced by 1 August 2022¹. No further detail on the content of the final rules, or on any implementation period for firms after that date, has been reported in the material available¹.