The Financial Conduct Authority (FCA) has introduced a new Consumer Duty, which sets higher standards for consumer protection in financial services. The Duty came into effect on 31 July 2023, and firms have until 31 July 2024 to implement it fully.
The Consumer Duty has three main objectives:
- To ensure that firms act to deliver good outcomes for retail customers.
- To require firms to act in good faith towards retail customers and avoid causing them foreseeable harm.
- To enable and support retail customers to pursue their financial objectives.
The Duty applies to all firms that provide financial services to retail customers, including financial advisers. This means that financial advisers need to take steps to ensure that they are meeting the requirements of the Duty.
Here are some key things that financial advisers need to know about the Consumer Duty:
- The Duty is outcome-focused. This means that financial advisers need to focus on the outcomes that their customers achieve, rather than simply following processes or procedures.
- The Duty requires firms to act in good faith. This means that financial advisers need to be honest and transparent with their customers, and they need to act in their best interests.
- The Duty requires firms to avoid causing foreseeable harm to their customers. This means that financial advisers need to identify and assess the risks that their customers face, and they need to take steps to mitigate those risks.
- The Duty requires firms to enable and support their customers to pursue their financial objectives. This means that financial advisers need to help their customers to understand their financial needs and goals, and they need to provide them with the information and support they need to make sound financial decisions.
The FCA has published a number of resources to help firms implement the Consumer Duty, including a Finalised Guidance document. Financial advisers should review this guidance carefully to ensure that they are meeting all of the requirements of the Duty.
Here are some specific steps that financial advisers can take to implement the Consumer Duty:
- Review your customer onboarding process. Make sure that you are collecting all of the necessary information to understand your customers’ financial needs and goals.
- Assess your customers’ risks. Consider all of the relevant factors, such as their age, income, financial situation, and investment experience.
- Make sure that your products and services are suitable for your customers’ needs and goals. Don’t recommend products that are too complex or risky for your customers.
- Provide your customers with clear and concise information. Avoid using jargon or technical language that your customers may not understand.
- Be responsive to your customers’ needs and concerns. Make sure that you are available to answer their questions and provide them with support when they need it.
The Consumer Duty is a significant change for the financial services industry. However, it is an important change that will help to ensure that retail customers are treated fairly and that they achieve good outcomes. Financial advisers who take the time to implement the Duty effectively will be well-positioned to succeed in the new regulatory environment.