Financial services companies must introduce a consumption obligation from July 2023


A new consumer obligation requiring financial services firms to put their customers’ needs first will come into effect from July next year.

The requirement will set higher and clearer standards of consumer protection, the Financial Conduct Authority (FCA) has said.

In its final rules and guidelines, the FCA said: “We want to see a higher level of consumer protection in retail financial markets, where businesses compete vigorously for the benefit of consumers.”

He said companies need to understand their customers’ needs and have the flexibility to support them.

The document states: “This is particularly important as consumers face increasing pressures, including those related to the cost of living.

“Even before cost of living pressures emerged, consumers were being asked to make an increasing number of complex and important decisions in a faster and increasingly complex environment.”

Some companies present information in a way that is misleading or difficult to understand, while others sell products or services to consumers that aren’t right for them or don’t offer fair value, or provide poor customer service and poor attendance, FCA said.

The obligation includes a consumer principle that “a business must act to deliver good results to retail customers”.

The upheaval will require businesses to act in good faith, avoid causing foreseeable harm, and enable and support customers in pursuing their financial goals.

The obligation will include requirements for businesses to make changing or canceling products as easy as picking them up in the first place, with an end to “fraudulent” charges and fees.

Companies will also need to provide helpful and accessible customer support, not making people wait so long for a response that they give up, the regulator said.

They will also need to provide timely and clear information about products and services so consumers can make sound financial decisions, rather than burying key information in long fine print.

The regulator also expects companies to provide tailored products and services to their customers and focus on diverse needs, including people in vulnerable situations.

One question companies may ask is whether they apply the same standards and capabilities to deliver good results to customers as they do to drive sales and revenue, the FCA said.

For example, companies might question whether communications focused on customer support are as clear as those used to sell the product.

They might also wonder if the quality of any after-sales support is as good as pre-sales support.

The rules will come into force gradually.

For new and existing products or services that are open for sale or renewal, the rules come into effect on July 31, 2023.

For closed products or services, the rules come into effect on July 31, 2024, giving businesses more time to bring older products, which are no longer on sale, up to the new standards.

Previously, a nine-month implementation period, ending April 30, 2023, was suggested.

But the FCA paper says industry respondents were convinced it was “very difficult” and that some might simply decide to withdraw products or services if the implementation period was too short.

Vince Smith-Hughes, director of specialist business support at M&G Wealth, said: “It is good to see the FCA taking into account the feedback from the consultation and giving businesses more time to integrate the rules and guidelines.

“However, that shouldn’t be a reason for companies to delay their preparation.”

The FCA said it would measure the success of the changes by monitoring key consumer outcomes; for example, by reviewing decisions of the Financial Ombudsman Service on consumer complaints about fees or charges or sales of inappropriate products or services.

It will also use its Financial Lives survey to monitor how people are feeling.

Its 2020 Financial Lives survey found that only 10% of consumers strongly agreed they had confidence in the UK financial services industry, with a further 32% slightly agreeing. Only 35% of companies agreed that they were honest and transparent in their dealings with them.

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: “The current economic climate means that it is more important than ever that consumers are able to make good financial decisions. The financial services industry must give people the support and information they need and put their customers first.

“The consumer obligation will lead to a major change in financial services and promote competition and growth based on high standards.

“As the obligation raises the bar for the companies we regulate, it will prevent some damage from occurring and allow us to act more easily and quickly when we detect new problems.”

Joanna Elson, chief executive of Money Advice Trust, which runs the National Debtline and Business Debtline, said: “The introduction of a new consumer duty is a milestone in consumer protection in financial services and builds on the work of the FCA in recent years. , to improve support for people in vulnerable situations.

“At a time when the finances of millions of people are under enormous pressure, I am encouraged by the regulator’s emphasis on higher and clearer standards of protection, which should bring greater clarity to consumers. and businesses.”

Helen Undy, chief executive of the Money and Mental Health Policy Institute, a research charity set up by consumer champion Martin Lewis, said the new requirement is “a big step forward”.

She said: “We need to see companies making changes now to protect people during the cost of living crisis, rather than using the extended FCA deadline as a reason to ease off.”


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