New plans from the City regulator to compel financial firms to act in the best interest of customers have been welcomed by consumer groups.
A new “consumer duty” outlined by the Financial Conduct Authority (FCA) will apply to a range of products, including mortgages, credit, pensions and investments, and require firms to consistently focus on the outcomes for their customers.
The regulator said that for many firms, this would require “a significant shift in culture and behaviour”.
In practice, it could mean tackling the “loyalty penalty” people sometimes pay when rolling over their insurance, or help consumers get the right current account deal.
The FCA has highlighted products in the past that exploit people’s behavioural biases, such as a tendency among some to over-borrow and under-pay on credit cards.
Under the proposals, which are out for consultation until the end of July, companies will be expected to take all reasonable steps to avoid foreseeable harm to customers and act in good faith.
They will also have to show that the benefits of the products are reasonable compared with the price.
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Sheldon Mills, executive director of consumers and competition at the FCA, said: “We want firms to be putting themselves in the shoes of consumers and asking: ‘Would I be happy to be treated in the way I treat my customers?’
“We want consumers to be able to advance their financial wellbeing and build positive futures for themselves and their families.”
The new rules are expected by July 2022.
The FCA is also considering the potential benefits of attaching a private right of action to the new duty, which would enable people to take firms to court.
The proposals were welcomed by Citizens Advice, which said consumers have been exploited by the high costs of credit and being loyal to some brands.
Its chief executive, Clare Moriarty, said: “These proposals should help ensure people are protected from the get-go rather than regulation having to play catch-up with poorly-designed products or firms that don’t act in the best interests of their customers.
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“The real test will come in how the FCA uses the consumer duty to proactively prevent harm and tackle breaches.”
Peter Tutton of the debt charity StepChange said his organisation would be looking at the proposals in detail.
“An effective duty has the potential to proactively drive real change and better protect vulnerable consumers,” he said.
