[INSIGHTS]: Financial Conduct Authority’s Guidance on Consumer Duty in Retail Financial Markets

ABOUT: The Financial Conduct Authority’s guidance aims to enhance consumer protection in evolving retail financial markets.

LINK: https://www.fca.org.uk/publication/finalised-guidance/fg22-5.pdf

Key Points and Ideas

  • The Consumer Duty includes a Consumer Principle, cross-cutting rules, and four key outcomes focused on product governance, price and value, consumer understanding, and support.
  • It’s underpinned by reasonableness, considering the nature of the product or service, customer characteristics, and the firm’s role.
  • Firms must prioritize consumer interests, ensure fair value, clarity in communication, and not exploit consumer vulnerabilities.
  • The guidance is issued under section 139A of the Financial Services and Markets Act 2000, outlining firms’ obligations.
  • It doesn’t replace other applicable laws but complements them, enhancing overall consumer protection.
  • The Duty applies across retail financial services, with examples illustrating expected and unacceptable behaviors.
  • Firms are encouraged to use the guidance for internal discussions and decision-making processes.

Key Statistics

  • Consumer Duty applies to regulated activities under the Financial Services and Markets Act 2000, Payment Services Regulations 2017, and E-money Regulations 2011.
  • The Duty extends across the distribution chain, affecting all firms with a material influence on retail customer outcomes.
  • Scope includes varied sectors like consumer credit, deposit-taking, insurance, investments, mortgages, and payment services.
  • Firms must conduct due diligence on other firms in the distribution chain regarding the Duty.

Key Takeaways

  • Consumer Duty sets a high standard for firms in retail financial markets, demanding a consumer-centric approach.
  • It requires firms to continuously review and adapt their services and products to ensure they align with consumer needs and provide fair value.
  • The Duty’s flexible application across various sectors and products highlights its comprehensive reach.
  • Firms are responsible for understanding and adhering to the Duty, even when collaborating with or relying on other firms in the distribution chain.
  • The Duty emphasizes the importance of clear communication, fair treatment, and support for consumers, particularly those vulnerable or less financially capable.
  • Firms must integrate the principles of the Duty into their culture and governance, ensuring board-level oversight and accountability.
  • The guidance is a step forward in ensuring that financial services operate in a way that favors consumer interests and well-being.
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