U.K. Moves To Put Consumer Protection At The Forefront Of Financial Regulation

The collective mood in the United Kingdom when it comes to discussions around effective corporate governance and regulation has been sceptical and jaded of late. It has felt at times like a collective national performance of Waiting for Godot. Today the Financial Conduct Authority (FCA) has moved in a way that could help change that perception. It confirms its plans to bring in a new Consumer Duty, setting higher and clearer standards of consumer protection across financial services, requiring firms to put their customer’s needs first.

On one level, you would think that consumers should already have the assurances this Duty is designed to provide. It will mean that consumers should receive communications they can understand, products and services that meet their needs and offer fair value, and customer support when they need it.

Firms will need to provide “timely and clear information that people can understand about products and services so consumers can make good financial decisions, rather than burying information in lengthy terms and conditions that few have the time to read” says the FCA.

The everyday clarity of this language from the regulator will be welcome, and it is is not much of a leap to connect aspects of the concerns here as reflecting a strong recent propensity by the FCA to diversity its own hiring, and stress the importance of doing this to all UK businesses.

By setting out clear requirements for firms to “end rip-off charges and fees” and “make it as easy to switch or cancel products as it was to take them out in the first place” , as well as “providing timely and clear information that people can understand” to help them make good financial decisions, the FCA is spelling out its intent to raise the bar on retail financial services. If it is successful, the consumer will be empowered.

It is a much-needed step, too, towards financial inclusion. Firms will be required to “focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in every interaction.”

Sheldon Mills, Executive Director of Consumers and Competition, FCA. Copyright belongs to FCA.

“The Consumer Duty will lead to a major shift in financial services and will promote competition and growth based on high standards. As The Duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems” said Sheldon Mills, Executive Director of Consumers and Competition at the FCA. The duty includes a new Consumer Principle that “a firm must act to deliver good outcomes for retail customers.”

While the FCA is giving firms 12 months to implement the new rules for all new and existing products and services that are currently on sale, it has amended original plans to extend the rules to closed book products 12 months later, to give firms time to bring these older products, that are no longer on sale, up to the new standards. PIMFA , the trade association for the wealth management, investment services and investment and financial advice industry which looks after £1.65 trillion in private savings and investments, has welcomed the extension.

“The Consumer Duty has the potential to be a transformative piece of regulation which will, we hope, substantially improve how firms serve consumers and work towards ensuring they receive superior financial outcomes……we are pleased the Regulator has listened to the industry and demonstrated a willingness to work with us to ensure that this new regulation works well from the very beginning” said Simon Harrington, Head of Public Affairs at PIMFA.

The FCA has a parliamentary mandate, through the Financial Services Act 2021, to take this work forward. Many of those in business and professional advisory roles in the U.K. are watching developments towards the birth of another regulator, one that has been heralded as “having more teeth” after a spate of scandals around standards in accounting and audit. ARGA (the Auditing, Reporting and Governance Authority ) is intended to replace the Financial Reporting Council (FRC), by April 2023. Earlier this month the FRC outlined its progress in its transformation as a regulator, having recently published a Position Paper setting out the next steps to reform the U.K’s audit and corporate governance framework.

Against the backdrop of the political leadership crisis in the United Kingdom, many voters are unlikely to be interested in this news, preoccupied as they are with fighting to manage daily lives in the middle of a cost of living crisis after a pandemic.

Those for whom the gig economy and its business models are more pressing a daily reality than the complexities of retail finance should note : new government guidance was launched yesterday to offer more clarity on employment status to help workers find out if they are being fairly treated. Back in February 2021, there was a Supreme Court ruling on Uber drivers being workers rather than self-employed, covered here on Board Talk as “a judgement set to cause ripples for all companies with new business models.”

“At the heart of the business model, like many thrown up by the ‘gig economy’ is a fundamentally unequal value of human capital” I wrote in the post you can read here , asking “at what point is the U.K. commitment to having a world renown corporate governance code and its regulation going to catch up with the growing realities of working life ?”

The latest guidance from the Department for Business, Energy & Industrial Strategy (BEIS) says it “brings together employment status case law into one place for businesses and individuals to access. This will support workers by improving their understanding of what rights they are entitled to at work…..critically, the guidance also clarifies the rights that gig economy workers are entitled to - from the national minimum wage to paid leave - while offering them the same degree of flexibility to take on additional work to top up their income, if they choose.”

The guidance includes advice for micro businesses, start-ups and SMEs that have less capacity and legal expertise to understand the law. It is also intended “to help curb unscrupulous employers from attempting to exploit the system in order to save on employment costs.”

“Today we are tidying up the rules; helping workers understand their employment rights and find out if they are being fairly treated by their workplace” said Jane Hunt, Business Minister.

In very different ways, these initiatives from the FCA and BEIS are all about clarifying and resetting standards and rules of operation for businesses in the U.K.- but critically, also about changing existing culture and organisational behaviour.

Main image credit: Jaanus Jagomagi on Unsplash (available for hire)