The Association of Consumer Support Organisations (ACSO) has responded to the Financial Conduct Authority’s (FCA) consultation ‘CP21/13: A new Consumer Duty’.
Rachel Cairnes, policy and public affairs advisor at ACSO, said: “There are many issues with the current provision of financial services in the UK, including poor-quality products, mis-selling, poor customer service and the exploitation of consumer loyalty or inertia. The sector is characterised by an asymmetry of information between financial services firms and their customers, and as stated by Earl Howe, “the risk is that some firms may seek to exploit this”.
“The FCA’s aim to ensure a higher level of consumer protection in retail financial markets is one we support fully, not least as 46 per cent of UK adults show one or more characteristics of vulnerability and are therefore more likely to face issues with their finances or struggle to interact with financial services providers. Moreover, improving consumers’ confidence and enabling them to make fully informed decisions should help to increase the low level of trust in financial services. As the 2020 FCA Financial Lives survey found, only 10 per cent of UK adults ‘strongly agreed’ that they had confidence in the financial services industry, with a further 32 per cent ‘slightly agreeing’ with this sentiment.
“A lack of trust and confidence drives consumer behaviours and can result in risk if consumers choose to disengage with the financial services industry or fail to address their own financial needs. As stated in the Penrose Report, which identified low consumer trust as an issue across a range of UK markets (not just financial services), “trust and confidence oil the wheels of commerce, allowing most transactions to happen faster, with much lower costs than in places where it doesn’t exist”.
“In line with the FCA’s expectation, we hope the new Consumer Duty will provide a framework for the ongoing development of UK retail financial services to ensure they operate in the best interests of consumers.”
However, Cairnes noted the following: “In the absence of the finalised rules, or detailed proposed rules, the structure of the Consumer Duty has the potential to be too high level, open to wide interpretation (and justification of actions) by individual firms, and cause confusion for firms and consumers. If not enforced properly, the FCA risks creating fragmented outcomes and a lack of consistency across the financial services sector.
“If the FCA is of the view that the [Treating Consumers Fairly (TCF)] principle has become a ‘tick-box exercise’, there is a risk that the Consumer Duty will face the same fate, rather than creating the desired culture change within firms. The challenge for the FCA is to create a consistent approach across the supervision and enforcement of the TCF, Consumer Duty and other existing requirements, without creating additional complexity. This is particularly so given the concept of reasonableness will apply to the interpretation of all elements of the Consumer Duty, including the Consumer Principle. While we welcome the concept, it may create a lack of consistency across the financial services sector.
To conclude, we welcome the FCA’s proposals for a new Consumer Duty to provide greater protections for consumers. We look forward to the publication of the FCA’s second consultation on the proposed text for the new rules and guidance.”
ACSO members can read the submission in full on the members’ area of the website.