The City watchdog’s flagship new regulation, the Consumer Duty, comes into force today with experts describing it as the most important regulatory change in a decade.
The new principle aims to ensure firms deliver good outcomes for consumers on the quality and price of products and services, and make sure a higher standard of consumer support is provided.
Pinsent Masons financial services regulation lawyer Venetia Jackson, said: “The UK financial services industry had not seen a similar regulatory upheaval since the creation of the Financial Conduct Authority (FCA) itself in 2013.”
“Firms are expected to take pro-active steps to ensure that if there is a risk of consumer harm, it is identified and any remediation is calculated and paid without waiting for customer complaints. Firms will be expected to think about their customers, their needs and objectives, and act to support them,” Jackson said.
They will also have to prove to the regulator that their desired outcomes are being met.
The FCA has warned that it will take action against non-compliance.
Speaking in May, the FCA’s consumer chief Sheldon Mills said “firms can expect us to take robust action, such as interventions or investigations, along with possible disciplinary sanctions”.
According to a recent research conducted by the FCA, only seven per cent of firms said they would have significant work to do once the deadline had passed.
Despite the data, some experts suggested that banks still have a lot of work to do to ensure they meet the high standards set by the new rules.
Chair of regtech firm docstribute and ex-Goldman Sachs banker Phil Shelley said firms needed to go much further to ensure customers can actually understand the products they engage with.
“There has been a great deal of focus on what is communicated but much less on how it is communicated. It’s a scandal that so much of our financial information is not communicated properly in an age when banks have access to a plethora of various digital technology tools,” he said.
Not everyone has been supportive of the reforms however, with many warning the rules are too unclear.
Research last week showed that 70 per cent of financial advisers thought the FCA had been unclear while almost half said they were more concerned about the risk of complaints and penalties.
City minister Andrew Griffith has reportedly slammed the Consumer Duty behind closed doors for introducing a whole new set of red tape just as the government is attempting to push through a range of deregulatory reforms.