Matthew Connell gives a regulatory update on the FCA’s proposed Consumer Duty
Consumer Duty
The Financial Conduct Authority (FCA) is consulting on proposals for its new Consumer Duty. This is a significant development, which consists of a new FCA principle, cross-cutting rules and defined consumer outcomes. The outcomes cover price and value, products, communication for consumers and consumer support.
It is this final category of consumer support that is the biggest innovation in the FCA’s approach. In the past, the FCA’s rules around treating customers fairly have given firms an obligation to make it as easy as possible for customers to switch to better-value products and services, but by making consumer support a standalone outcome, the FCA is explicitly targeting a much wider range of customer service.
The FCA has backed this up with a dynamic model of compliance, first developed for vulnerable customers, which involves:
- Developing a proposition.
- Monitoring the proposition.
- Analysing the data gathered during monitoring.
- Using everything that is learned to produce a better proposition.
In the past, the FCA has had a certain tolerance for firms that have not been adhering to this model of good practice, but it has signalled that it will be less tolerant of practices that depart from this basic set of processes in future.
It is likely that the FCA will continue to focus on issues that it has been concerned about in the past, for example the way in which value is delivered through outsourced chains of providers. However, with the new Consumer Duty it will be able to supervise according to outcomes more easily than according to detailed, prescriptive rules, which will put more emphasis on organisational governance and culture than on traditional compliance processes.
Sustainability
The insurance profession’s focus on sustainability continues into 2022 with the momentum from last year’s COP event. A range of organisations connected with insurance, including the CII, have prepared a report for the Department of International Trade on making the UK a global hub of risk advice and underwriting expertise around climate change and sustainability.
Regulatory Framework
HM Treasury is consulting on its Regulatory Framework Review. This is part of the process of moving responsibility for financial regulation from the EU to the UK.
Many of the legislative powers enjoyed by the European Council and the European Parliament will be transferred to the Prudential Regulation Authority and the FCA.
One key element of the consultation is around how supervisors will use these powers in a way that is transparent and accountable. HM Treasury is focusing on governance and transparency, and wants to:
- Set out a clearer framework for regulators creating and publishing cost benefit analysis.
- Establish a regular review of rules by the UK regulators.
Responses to the review include an attempt to make financial inclusion a clear objective for regulators, to both protect consumers and make markets work more effectively for the public. The CII has supported these calls to put inclusion at the very top of the agenda.
Matthew Connell is policy and public affairs director of the CII
