The UK’s top financial regulator has warned it will take “robust action” against companies not ready for new consumer protections coming into force in less than three months’ time, after it discovered shortcomings in plans for implementing the landmark reforms.
The Financial Conduct Authority on Wednesday said it had reviewed how 14 firms proposed to prove to customers that their products and services offered “fair value”, or that their price was commensurate with their likely benefit.
The principle is a key aspect of the FCA’s new “consumer duty” package and obliges banks, asset managers and other providers of regulated financial services to prove they are acting in customers’ best interests.
The new rules, which come into force on July 31 and are among the FCA’s top priorities for 2023, have proved contentious. Some experts have dismissed them as “woolly” and some firms have complained about the burden of implementing them. City minister Andrew Griffith has privately said he also shares the industry’s concerns about the potential for the duty to trigger a wave of compensation claims.
In Wednesday’s update, the FCA said that while many firms had made “substantial efforts” in preparing for the new consumer duty, there were shortcomings in virtually every area of implementation.
The regulator urged the tens of thousands of other firms covered by the rules to examine the findings of its review, and ensure their plans took note of the “areas for improvement” highlighted.
“We will prioritise the most serious breaches and act swiftly and assertively where we find evidence of harm or risk of harm to consumers,” said Sheldon Mills, the FCA’s executive director of consumers and competition.
He added that firms “can expect us to take robust action, such as interventions or investigations, along with possible disciplinary sanctions” in some cases.
Shortcomings identified by the FCA included companies relying “at least partly” on “high-level or unevidenced arguments that their business models or ethos are inherently fair”. Others were found to be using a single general template to assess fairness across different markets and to be ignoring profit margins in assessments of whether products and services were fairly priced.
The regulator also called out some firms for relying on “average outcomes” to demonstrate fairness instead of looking at individual cases, and for not identifying “how they plan to monitor fair value, what data they might want to use or how they would address data gaps”.
Elisabeth Bremner, a financial services partner with law firm CMS, pointed out that the FCA had only finalised details of the rules last July and said she hoped regulators would give “grace” to firms “where they can show they’ve acted in good faith to implement the duty and prioritise higher risks”.
UK Finance, the trade body, said: “Firms are working hard to implement the requirements of the new consumer duty and the further information provided throughout the implementation period has helped them to understand regulatory expectations, alongside areas where further work is needed before the July deadline.”
It added that “UK Finance and our members will continue to engage with the FCA ahead of the consumer duty coming into force”.
