The Financial Conduct Authority (FCA) has published a feedback statement summarising the responses received to its ‘A duty of care and potential alternative approaches’ paper.
The initial paper, released in July 2018, was published to ascertain whether there was a gap in the regulator’s regulatory and legal framework, and assess whether a change in the current duty of care was necessary. The FCA also wanted to understand what a New Duty might do to enhance conduct and culture in financial services.
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The majority of respondents told the FCA that they believe the current level of harm to consumers is ‘unacceptably high’ and change is required to better protect them. Some stakeholders suggested a new definition of the standard of conduct firms owe to consumers, in the form of a statutory duty or as a duty expressed within the Principles for Business.
A New Duty, according to the feedback, could trigger fundamental change across financial services by creating a unifying, overarching standard of care. Furthermore, a New Duty could provide clarity for both the FCA and consumers in what they can expect/demand from firms. The FCA would benefit from a new baseline against which it could take action in cases of new and emerging harms.
Following the feedback, the FCA will move forward with two business plan priorities: considering the future of regulation and consumer protection, and exploring issues of culture and governance in financial services.
The report read: “It is important that we make progress. But it is also important that any changes we decide to make have a lasting impact, so we must give these complex questions the careful consideration they demand.
“We know that consumer harm can be caused by different things, so there is unlikely to be a one-size-fits-all solution to any weaknesses in consumer protection. We also need to consider how existing protections might already address some of the perceived gaps in consumer protection.”
Next steps
The regulator has identified two paths that will form its primary focus moving forward with the matter. Firstly, it will review how the regulatory framework is applied – particularly how the Principles are applied and how to communicate with firms about this.
Secondly, the FCA will consider new/revised Principles to strengthen and clarify each firm’s duty to consumers, including consideration of the potential merits and unintended consequences of a potential private right of action for Principles breaches.
A further paper will be published in autumn 2019 detailing specific options for change.
The new paper follows a recent FCA report into the motor finance industry, which identified a number of ‘serious concerns’ that could be causing potential harm to consumers.
