On 17 July 2018, the FCA set out its approach to consumers: FCA Mission: Approach to consumers. The Approach document sets out the FCA’s vision for well-functioning markets for consumers, including how the FCA aims to add greater depth to how it fulfils its statutory objectives in relation to protecting consumers in financial services.
In addition, the decision-making framework set out in the FCA’s Mission (dated April 2017) and the FCA’s consultation paper (dated November 2017), started a discussion with stakeholders about the regulator’s proposed approach to regulating for retail consumers.
The FCA explains in its Approach document that it will ensure an appropriate level of protection for all consumers, focusing its efforts on tackling the greatest areas of actual or potential harm, for example where:
- firms are exploiting consumers’ behavioural biases or vulnerabilities; and
- consumers suffer harm as a result of scams or unauthorised firms.
Vulnerable consumers are a particular focus of the FCA. The regulator expects firms to pay close attention to indications of potential vulnerability and to have internal policies in place to deal with consumers who may be at greater risk of harm. The FCA has also taken this opportunity to remind firms it will intervene by taking enforcement action where vulnerable consumers are deliberately exploited.
Interestingly, in response to its November 2017 consultation, certain stakeholders raised concerns that the current regulatory framework does not provide adequate protection for consumers. By way of immediate response, the FCA has reverted to its original, wider definition of a vulnerable consumer from Occasional Paper No. 8 “Consumer Vulnerability”, which is “Someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.”
Separately and alongside its Approach document, the FCA has issued a discussion paper to consider whether there is a gap in its regulatory and legal framework that could be addressed by introducing a new duty of care for financial services firms. The objective would be to enhance behaviour in the financial services market, including the potential for alternative approaches to different consumers. The FCA hopes that the introduction of a duty of care would reduce harm by requiring firms to avoid conflicts of interest, as well as supporting longer-term cultural change within firms.
In particular, they hope that the discussion paper will:
- assess whether change is desirable and, if so, consider what form it could take, how it would work in practice alongside the current framework and what consequences it would have for consumers, firms and the FCA;
- help the FCA better understand how a new duty for firms might enhance good conduct and culture in financial services, including how this could influence consumer outcomes, alongside the senior managers and certification regime (SM&CR).
- Help the FCA better understand and consider possible alternative approaches that might address stakeholders' concerns raised in response to the FCA's consultation on its approach to consumers.
The FCA is inviting contributions from all interested parties on the case for and against introducing a duty of care on firms and seeking views on what form such a provision might take, as well as consequential issues arising from adopting it. The deadline for comments on the discussion paper is 2 November 2018.
The FCA’s proposal for introducing a duty of care is not entirely novel – it represents the evolution of its existing requirement to treat customers fairly and the six TCF outcomes. The FCA’s proposed “New Duty” is two-pronged: (i) a positive obligation to promote customers’ best interests; and (ii) a fiduciary duty not to cause harm to a customer’s financial interests, for example by avoiding conflicts of interests. Given other impending regulatory priorities, it remains to be seen whether and how this will be implemented. However, it is clear that the FCA is committed to reviewing the effectiveness of its approach by exploring new proposals in circumstances where weaknesses in consumer outcomes are uncovered.