Investment fraud & mis-selling is a growing concern, with a range of illegal and unethical tactics being used to convince people to part with their money. In response, the Financial Conduct Authority (FCA) has introduced a new ‘Consumer Duty’, which brings in higher standards of consumer protection. If financial firms break the rules or fail to adhere to the regulatory requirements, they can be fined by the FCA.
Designed to stop rip-offs, unexpected charges, and financial mis-selling, the new consumer duty has been called “the biggest regulatory shake-up of UK retail financial services for two decades”.
But what exactly is it, and will it stop investment fraud and mis-selling?
What is the Consumer Duty?
According to the FCA, the new Duty “sets higher and clearer standards of consumer protection across financial services and requires firms to put their customers’ needs first.”
In practice, this means that financial firms must:
- Offer helpful and accessible customer support, so it's easy to sort out a problem, switch or cancel a product as it was to buy it in the first place
- Provide timely and clear information that is easy to understand, so clients can make good financial decisions. This means important information shouldn’t be buried in lengthy terms and conditions
- Provide products and services that are right for the client, rather than pushing products and services they don’t need
- Provide products and services that provide fair value. This should mean people won’t be ripped off or have to pay costs they didn’t expect
- Consider if a client is vulnerable when dealing with them.
These rules apply to all new and existing products and services that are currently on sale and the regulator is expected to take tough enforcement action if a firm falls below the required standard. To report an issue, you can quote ‘consumer duty’ when making a complaint.
However, it is difficult to see how the FCA will effectively police and enforce the Consumer Duty without a significant investment in resources. The price of financial advice may also rise as businesses adopt more robust processes and pass the cost of doing so onto their customers.
Overall, the introduction of the new Consumer Duty is a step in the right direction. But how much the new standards will benefit investors is yet to be seen.
