Written on 21/01/2022


The FCA proposals to introduce yet more legislation to force the industry into another duty towards the consumer will transcend TCF into something more tangible.

CLICK TO DOWNLOAD paper summary produced by IFAC.

We also feel entitled to ask:

Exactly how is the proposed New Consumer Duty different to TCF?
For those of you who have read the FCA’s Consultation Papers CP21/13 and CP21/36, you would be forgiven for thinking that the New Consumer Duty is just TCF in triplicate.  I mean, the FCA already have Principles 6 and 7 alongside the 6 TCF Outcomes, what more could a new Consumer Duty bring to the table?

Let’s take a look …

The FCA state that they “want to see higher levels of consumer protection in retail financial markets, where firms compete vigorously in the interests of consumers” in addition to wanting “to drive a healthy and successful financial services system in which firms can thrive and consumers can make informed choices about financial products and services.”  Now, I am sure you are now asking yourselves, “But don’t we do this already?”  

IFAC very much believe that in the main, advisory firms have the “interests of consumers” at the heart of everything they do but this is about more than that and the Financial Services industry as a whole and the part that every firm plays in the lifecycle of a product or service to ensure a fairer, more consumer-focused and level playing field.  So you can expect more counter party pressure - checking and due diligence conducted between parties. 

There are many reasons behind this New Consumer Duty; the Financial Lives Survey 2020, Parliament strongly recommending action under the Financial Services Act 2021, and FCA Supervision and monitoring.  

It is interesting to look at the Financial Lives 2020 survey conducted by the FCA in February 2020 (pre-pandemic), of which there were 16,190 respondents. In February 2020, only 42% of adults had confidence in the UK financial services industry and just 35% agreed that financial firms are honest and transparent. People with characteristics of vulnerability and the over-indebted were more likely than average to lack confidence in the industry. Financial advisers received an average score of 5.2 out of 10 (where 0 is “do not trust at all” and 10 is “trust completely”), which is the same as Insurance Companies. Banks were the most trusted but still only achieving 6.5. Comparators of the Government at 4.1 and Social-Media at 2.9 help understand consumers’ views. It was clear from the survey that consumers trust was higher when questioned on their own provider than as an overall view; unfortunately, there doesn’t appear to have been a question about advisory firms to understand this further.

Returning to the New Consumer Duty and its structure, we are looking at a Consumer Principle, Cross-cutting rules and 4 outcomes.  In the most recent paper, the FCA have confirmed that this new principle will be “A firm must act to deliver good outcomes for retail clients” and this will replace current Principles 6 and 7 for those firms where the Consumer Duty applies. This removes any duplication and moves the Principle to being outcome based rather than being guidance. Of course, firms will still need to consider the guidance of these two principles as they form part of the Consumer Duty.

The cross-cutting rules strengthen the Principle by asking firms to act in good faith towards retail customers, avoid causing foreseeable harm to retail customers, and enable and support retail customers to pursue their financial objectives. We have always talked about the prevention of client harm in addition to TCF outcomes, and I feel these crosscutting rules provide clarification on this area and reiterate the importance of being focused on the outcomes for consumers.

Lastly there are the four outcomes – Products and services, Price and value, Consumer Understanding and Consumer Support. Read these and you will be reminded of existing Target Market and Product Governance requirements from MiFID and TCF Outcome 2, Costs and charges representing fair value for consumers and TCF Outcomes 1 and 5, Firms providing information that is clear, fair and not misleading and TCF Outcomes 1,3 and 4 and finally TCF outcomes 1 through 6 ensuring that there is the appropriate support through the entire process. And of course, Vulnerable Customer rules and guidance is intertwined throughout the entire Duty. These are all things you will be fully aware of from our Audit process, file checking and Promotion reviews.

So, is it TCF in triplicate? No. Is it TCF improved? Yes.

This Consumer Duty redefines existing principles, rules and outcomes and encapsulates under one umbrella. The FCA’s ambition is to set a higher standard than the Principle 6 requirement. I don’t want to think of this as a “re-hash” of existing rules, I want it to have purpose and to provide clarity for both firms and consumers – nevertheless I will admit it is somewhat repetitive of what has already been expected of advisory firms for some time. I think it’s a “wait and see” moment for the finalised rules and how the FCA supervise and enforce them. It certainly gives the FCA more ability to hold firms to account for their actions and I can see how the FCA will have the ability to take action on firms more quickly and likely more strongly with a redefined focus. 

The emphasis here will be on proof of this duty being met, as so many things are with the FCA. There are more monitoring requirements and an emphasis on Senior Management to ensure governance of the firm’s adherence to the Consumer Duty. Management Information and ongoing monitoring is key.
Do you meet the requirements of the New Consumer Duty? Prove it!


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