Citing concerns about firms exploiting behavioural biases and selling substandard products, the U.K.’s Financial Conduct Authority (FCA) is seeking to alter the industry’s approach to treating customers fairly.
The regulator introduced a proposed new industry duty that’s designed to ensure a higher standard of consumer protection and to prevent harm before it can happen.
The regulator said it’s seeking to “fundamentally shift the mindset of firms” amid concerns that the financial services industry doesn’t always work well for consumers.
In particular, the FCA said it has discovered practices that can harm consumers, including firms providing disclosure that seeks to take advantage of consumers’ behavioural biases, selling products and services that don’t meet their purpose, pitching products that lock customers into poor performers, and offering weak customer support.
These sorts of actions undermine trust in the industry, the FCA said, noting that its consumer survey in 2020 found that only 10% “strongly agreed” that they had confidence in the financial services industry, and that just 35% believed that industry firms are honest and transparent.
At the same time, the regulator said that a willingness to exploit customers creates unfairness between firms.
“We want firms to be incentivized to compete in the interests of consumers,” the FCA said in the consultation paper. “High standards of conduct should be advantageous for individual firms and the industry at large, with a trusted financial services industry that is internationally attractive and competitive.”
The FCA said the new rules are intended to raise industry standards by creating an obligation for firms to get their products and services right from the outset.
They will also require firms to focus on empowering their customers to make good financial decisions, and to “avoid foreseeable harm at every stage” of the relationship.
The proposals introduce a new principle that requires firms to “act to deliver good outcomes for the retail consumers of its products.”
The principle will also be augmented by new rules, ”which will ensure a cultural shift in how firms focus on consumers,” the FCA said. “This should feed through to how firm’s design products and services, as well as how they communicate and provide customer service.”
“Making good financial decisions is vital to financial well-being and trust, but too often consumers are not given the information they need to make good decisions and are sold products or services that do not offer the benefits they might expect. We want to change that,” said Sheldon Mills, executive director of consumers and competition at the FCA, in a release.
Along with consultation on the new duty, the FCA published draft guidance to help firms prepare to comply with the new regime.
The regulator also said that it will use “assertive supervision and its new data-led approach” to compliance and enforcement when it discovers industry practices that don’t work well for consumers.
“The new duty will drive a change in culture at firms. We expect firms to step up and put consumers at the heart of what they do and we’ll be holding senior managers accountable if they do not,” Mills said.
The proposals are out for consultation until Feb. 15 and the FCA is expected to finalize its rules by July 31.