FCA must urgently clarify Consumer Duty for firms

The Financial Conduct Authority (FCA) must urgently clarify expectations around its new Consumer Duty so firms are not caught out, PIMFA warns.

The adviser trade body wants firms to be assessed for their ability to discharge their obligations under the duty.

In May the regulator announced plans for a new Consumer Duty that aims to provide a higher level of protection in the financial services market.

It will require firms to provide consumers with products and services that are fit for purpose, represent fair value and are clearly communicated.

PIMFA says it supports the FCA’s desire to address the harms the consumer duty is intended to tackle but doesn’t see “why the FCA feels it requires new powers when it already has many powers at its disposal”.

The trade body expressed concern that the new duty could lead to a situation in which the Financial Ombudsman Service regulates in hindsight with firms falling foul of elements of a duty they did not know existed.

It adds that this will drive up costs for some firms or lead to regulatory failure for others.

PIMFA urged the regulator to give due consideration to the broader regulatory architecture and how its proposals may interfere inadvertently with business models – specifically in the execution only market.

It says that previous work linked to the Financial Advice Market Review concluded that almost any recommendation with any degree of personalisation crossed the boundary.

This would create a tension between what services firms have permissions for and are willing to provide and the execution of a consumer duty.

PIMFA chief executive Liz Field said: “The very real risk that we see in these proposals introduce a higher level of expectation on firms without providing the necessary clarity, granularity and guidance which underpin the FCA’s proposals for a Consumer Duty.

“In doing so, they increase the chances of regulatory failure for firms which are currently unwilling, or unable, to meet their obligations, and place increased cost and administrative burdens on firms which do.

“This is indicative of a long-standing criticism we have of the regulator. When harm occurs in the market, it seeks to introduce new rules rather than understand whether or not the rules already in place could be enforced better and be accompanied by fit for purpose supervision.

Field added: “In giving due consideration to a consumer’s best interests, we are particularly concerned that under Consumer Duty proposals, firms will now be required to provide recommendations and services to people with a degree of personalisation.

“This runs a significant risk of forcing firms to cross into giving a form of advice which would in turn, create a tension between what services firms have permissions for, and are willing to provide, and the execution of a consumer duty.”

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FCA must urgently clarify Consumer Duty for firms