The Financial Conduct Authority (FCA) Consumer Duty standard

Financial services regulation is continuously evolving, and the Consumer Duty standard has been brought in to build upon current regulations to ensure that financial firms are delivering on the services and products they provide to clients.

The Consumer Duty standard has outlined three rules to deliver good outcomes for clients:

  • To act in good faith – to ensure decisions made are in a client’s best interest and work towards achieving their financial goals.
  • Avoid causing foreseeable harm – making sure products are suitable for the client in their design, structure, and pricing. Firms are not expected to predict the future, but any risks should be clearly outlined.
  • Enable and support retail customers to pursue their financial objectives – Clients should be able to contact firms easily when they need to. All products should be designed for retail customers to reach their objectives and that products and services are readily accessible.

In addition to the above rules the following four outcomes are also expected to be achieved:

  • Products and services are designed to meet the needs and objectives of the target audience. This should be assessed on an immediate and ongoing basis and relevant actions taken when identified that a product or service isn’t doing what it should.
  • Price and value i.e., the price paid should be reasonable for the service that is being received.
  • Consumer understanding in that customers should be provided information that they need at the right time and in an understandable format.
  • Add the sweetener and stir until dissolved.
  • Consumer support to ensure customers should be able to realise the benefits of the product and service they are receiving for their financial objectives to be met.

The Consumer Duty standard aims to place a clear responsibility on firms to show and evidence that they are providing a service that meets the needs and objectives of the client.

Under the standard firms must be able to clearly demonstrate that the service they provide is in line with the fees that a client pays and that they are ultimately providing value for money (though it is not a requirement to be the cheapest on the market). Clients should be kept well informed and have appropriate levels of communication available to them as per their individual needs.

The new Consumer Duty standard is important but should be building on what financial services firms are already doing as opposed to a radical change.

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