FCA publishes second consultation on Consumer Duty

Following its initial consultation in Q2 this year (CP21/13), the FCA has set out the responses it received and has published a second consultation on its plans for a new Consumer Duty (CP21/36).

The FCA received 235 responses to CP21/13 from a combination of firms, professional and trade bodies, service providers, academics, consumer organisations and individuals, all of which saw the Consumer Duty as a significant undertaking. Many respondents agreed with the concept of a Consumer Duty but concerns were also raised, for instance about the proportionality and design of the proposal.

CP21/36 clarifies and expands on the FCA’s proposals in a number of areas. Highlights include:

Duty of care – FCA does not agree that the ‘label’ Consumer Duty implies a legally enforceable obligation. The FCA has not branded the Consumer Duty as a ‘duty of care’ nor do its proposals comprise a ‘one-line duty’, rather, they are a package of measures specifically designed to tackle consumer harms, and their causes, more effectively;

Private right of action (PROA) – FCA is not intending to make a PROA available for the Consumer Duty at this stage. The FCA’s view is that the existing redress framework is likely to be a more appropriate route for almost all consumers to seek redress and that it is working closely with FOS to improve awareness of the redress system. FCA will keep the possibility of a PROA under review, including in light of the evidence it sees of firms’ embedding of and compliance with the Consumer Duty;

Timescales for implementation – FCA considers at this stage that firms should have until 30 April 2023 to fully implement the Consumer Duty but it is asking for views on this timescale;

Monitoring – FCA expects firms to produce and regularly review MI on consumer outcomes which should be appropriate to the nature, scale and complexity of their business, considering the size of the firm, the products or services it offers and the consumer base it serves. The FCA also expects a firm’s board to deliver an annual report assessing whether it is acting to deliver good outcomes for its customers which are consistent with the Consumer Duty; and

SMCR – FCA proposes to amend the SMCR individual conduct rules in COCON by adding a new rule requiring all conduct rules staff within firms to “act to deliver good outcomes for retail customers” where their firms’ activities fall within scope of the Consumer Duty. Where this new rule applies, the existing Rule 4, which requires conduct rules staff to “pay due regard to the interests of customers and treat them fairly” would not apply.

CP21/36 also includes draft non-Handbook guidance which sets out more detail on what the Consumer Duty does and does not require (at Appendix 2).

The consultation closes on 15 February 2022 and the FCA expects to make any new rules by 31 July 2022.

Lucy Hadrill