FCA consultation: 'A New Consumer Duty' - Which? response

Summary

Which? supports the FCA’s proposals for a new Consumer Duty

• Which? welcomes the opportunity to respond to the FCA’s consultation on a New Consumer Duty (NCD).
• The current regime has failed to provide customers with an adequate level of protection. There continue to be far too many instances - many of them detailed in the FCA consultation - where the financial services market does not meet consumer needs and causes significant levels of consumer harm.
• We support the FCA’s proposals and its ambition to introduce a higher level of consumer protection in retail financial markets. Taken together, the core components of the NCD offer the prospect of enabling customers to benefit from a higher standard of protection. We are particularly supportive of several elements of the NCD package: the proactive, anticipatory approach which will be required from firms; its focus on consumer outcomes rather than prescription of inputs; and confirmation that it will apply at every stage of a retail firm’s processes and at every level of the organisation, as well as to firms across the supply chain even if they do not have a direct relationship with the end customer.
• While we anticipate that the NCD has significant potential to raise standards, the FCA must continue to be ready to make use of other, existing tools to address areas where consumer harm emerges or where market-wide remedies may be needed to tackle long-standing issues, in the same way that the FCA has, for example, taken action to address issues in relation to pricing practices in general insurance markets. In addition, the planned introduction of the NCD should not be used by either the FCA or industry to delay more immediate, targeted interventions which may be required to tackle sector-specific harms which emerge ahead of the NCD coming into force.

Robust supervision and enforcement are essential if the NCD is to make a difference to consumers

• For the FCA’s proposals to make a practical difference to consumers it is imperative that firms are held to account for meeting the higher standard. Significant change will not be brought about by changes to wording alone - a number of financial services sectors already have obligations to act in the ‘best interests’ of their customers yet we have seen no noticeable uplift in treatment of their customers.
• The FCA must adopt a far more proactive and robust approach when authorising and supervising firms, and enforcing the rules, so the NCD is mainstreamed from the FCA’s very first contact with firms. In this regard, the transformation demanded of industry must be reflected by the FCA’s own internal transformation, with the FCA to be judged on how its actions help to deliver good consumer outcomes. Recent references from the FCA to ‘assertive supervision’ and the commitment to develop a ‘regulatory nursery’ to enable enhanced oversight of newly authorised firms signal a move in this direction and are to be welcomed. However, the size of the task should not be underestimated - it will require more resources but more importantly it demands a major, sustained change in approach from the entire FCA organisation, involving the FCA adopting a far more proactive and robust approach to apply the key tenets of the NCD when authorising and supervising firms, and taking enforcement action against them for breaches of the NCD. 
• There is a lack of information about how the FCA will approach supervision and enforcement of the NCD. While references to ‘assertive supervision’ are to be welcomed, the FCA should provide more detail about its approach to supervisory oversight in its follow-up NCD consultation.

The NCD should be accompanied by a Private Right of Action

• Consideration must also be given to opening up other routes to allow consumers to hold firms to account where they fail to meet the higher standard. In our view, the proposals for a Private Right Of Action (PROA) offer the potential to help deliver the step-change in treatment of customers which is required. In the absence of detailed information from the FCA on how the higher standard will be supervised and enforced, and in the context of some industry participants asserting they already meet the higher standard, the PROA - particularly if it also enables consumers to take part in class action and obtain collective redress - offers the prospect of making a real difference and bringing about behavioural and culture change at senior levels throughout the industry.
• We recognise that fundamental changes to the regulatory framework can have wide-ranging impacts so we acknowledge that the FCA must be mindful of unintended consequences when considering how best to allow consumers to bring a PROA for breach of its Principles, including the Consumer Principle. However, the FCA has considered the issues surrounding a duty of care for almost four years so its next NCD publication should make clear its views on the desirability and consequences of including a PROA in the NCD package.

The FCA must set out a clear framework to judge the success of its NCD proposals and an ambitious timetable for delivery

• The FCA should set out a clear framework for how it proposes to measure the success of its proposals and the timeframes over which it anticipates they will be delivered.
• It is right and proper for careful consideration to be given to proposals to make fundamental changes to the regulatory framework. Yet the FCA’s Discussion Paper on a duty of care was issued in July 2018 and under current plans any new rules are unlikely to be introduced until late 2022, at the earliest. While details have changed during this period, the direction of travel is largely unaltered. The FCA should set an ambitious yet achievable timetable for the introduction of the NCD package.
• To assist industry in making the requisite changes, the FCA should undertake a comprehensive communications programme to disseminate timely information about the scale and content of the forthcoming changes, the steps firms need to take and the timescale for doing so, and the change programme that the FCA itself is undergoing. Failure to move swiftly will mean consumers will suffer due to the litany of practices that the FCA itself admits continues to cause consumer harm.