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Listen nowNew Consumer Duty launches: what will it mean for you?
Savers could be the first to benefit from new rules for financial firms
The Financial Conduct Authority (FCA) has launched a new set of rules called the Consumer Duty today (Monday 31 July) to raise the standards of how financial firms treat customers and ensure they receive 'fair value'.
To mark the launch with a bang, the regulator has set out a 14-point plan on cash savings to ensure banks and building societies are passing on interest rate rises to savers.
The changes have been described by UK Finance, which represents banks, as 'one of the biggest shake-ups to retail financial services regulation'. But will it succeed? Here, Which? takes you through the new initiative.
What's changing?
Crucially, the Consumer Duty represents a move away from specific rules – within which firms can treat you how they wish – towards an overall expectation of consumer-friendly practices.
The new practices mean you should be treated better when accessing financial services such as pensions, investments, savings, credit cards, loans and mortgages.
There’s an overarching Consumer Principle, which requires firms to act to deliver good outcomes for their customers. Specifically, firms must integrate three elements into their business practices.
Companies must act in good faith toward customers, avoid foreseeable harm to them and enable them to pursue their financial objectives.
Finally, there are regulations relating to customers being offered appropriate products and services, backed by communications they can understand and accessible customer support.
- Find out more: best banks
Savers could be the first to benefit
The base rate has risen 13 times since December 2021, and while banks have rushed to increase mortgage rates they have been slower at passing on the increase to savers, especially those with money in easy-access savings accounts.
The FCA found nine of the biggest savings providers, on average, only passed on 28% of the base rate rise to their easy access deposits between January 2022 to May 2023. It's also been noted that smaller firms have typically offered higher rates on average than larger rivals.
As a result, the regulator has set out a 14-point action plan to make sure interest rate rises are passed on to savers 'appropriately'.
Firms offering the lowest savings rates will need to justify how the rates offer 'fair value' as defined by the Consumer Duty by the end of the month and if they can't the FCA will take 'robust action.'
The FCA will also publish an analysis of easy access savings rates every six months to reveal the best and worst providers, challenge providers on the different rates for new and existing customers, and monitor how cash savings contribute to a provider's profits.
How else could the new rules protect you?
Exploiting customers’ behavioural tendencies or lack of knowledge – for instance, playing down less immediate costs such as renewal fees – would be seen as not acting in good faith.
Foreseeable harm could include customers falling victim to scams, paying more in investment fees than they’re likely to see in returns, or vulnerable customers being sold products they’re unable to use.
As for helping consumers pursue financial objectives, this could include pointing credit card applicants who have been declined to guides on how to improve their credit score.
Overall, the FCA expects to see improvements in communications, progress on suitable pricing, and higher levels of customer service now the rules have come into effect.
- Find out more: unexplained insurance decisions leaving customers powerless
When will the new rules apply?
There are two milestones for the new regulations for companies.
New and existing products and services open to sale or renewal must adhere to the rules from today (31 July 2023). For closed products and services, which are no longer available, such as savings accounts that are no longer available to new customers, providers get an extra year (31 July 2024).
Will the way to complain change?
You can complain if you think a firm isn’t following the Consumer Duty, but the way you complain won’t change.
You’ll still need to give the business a chance to respond. If it takes longer than eight weeks, or rejects your complaint, you can ask the Financial Ombudsman Service (FOS) to investigate.
The FOS said in its budget and plans for 2023-24 that it expects a short-term increase in complaints as a result of the Consumer Duty, but then hopes there will be a gradual fall in the number of disputes as the Duty leads to the better treatment of customers.
- Find out more: how to take a complaint to the Financial Ombudsman Service
What do firms think of the new rules?
The Consumer Duty has been welcomed by the Association of British Insurers and described by UK Finance, which represents banks, as the FCA’s ‘most important regulatory intervention in a decade’ and one ‘we all want to see succeed’.
Financial advisers have given a mixed response to the Consumer Duty. Keith Richards of the Consumer Duty Alliance, which represents advisers, said: ‘It should be seen as an opportunity for the advice profession to take control and ownership.’
However, some 92% of advisers think that the Consumer Duty will increase the cost of running their businesses, according to research carried out by Panacea Advisers between February and April 2023.
Will the Consumer Duty succeed?
Which? was extensively involved in the consultation process as the Consumer Duty was developed. We broadly welcome its aims – and the move to ensure there are higher and clearer standards of consumer protection for financial firms in the future.
Rules are just the first step, however; what will make a difference is whether the FCA properly supervises firms and takes enforcement action against those that don’t comply.
It may be that the Consumer Duty could push up the prices of products such as advice fees, as companies cover compliance costs, but it shouldn't provide an excuse for higher costs.
