The FCA's Approach to Consumers: more work still to do

Co-authored by Sophie Brammer (Associate).

Following a consultation period launched last year (which we considered in a previous FIsion blog post here), the FCA has now published its final Approach to Consumers. This new look at the treatment of retail customers is one of a series of documents that the FCA intends to publish to explore its regulatory approach in greater depth in light of its Mission 2017. It draws on a number of other recent FCA publications, including the Financial Lives Survey and the Occasional Paper No 8 on consumer vulnerability. 

The purpose of the Approach to Consumers is to set out the FCA's vision for well-functioning markets and to explain how the FCA will use its resources to protect consumers. The final document confirms the core principles supporting the FCA's approach, the key outcomes that it expects to see and the three key themes for delivery of these outcomes: regulating for the real world, regulating for vulnerable and excluded customers and regulating for the future. At the same time, it leaves some open questions for further consideration by the FCA. 

A continuing focus on vulnerability 

While vulnerability is one of the key principles informing the Approach, uncertainty remains around the FCA's expectations in this area. In fact, having originally suggested amending its existing definition of consumer vulnerability in the draft Approach document, the FCA has now decided not to make this change. 

While the proposal was not intended to mark a change in direction or to impose new expectations on firms, the industry feedback was that the existing definition had already been widely adopted and that the new definition risked narrowing the scope of vulnerability and shifting responsibility to consumers to identify themselves as vulnerable. As the consultation feedback also demonstrated wider uncertainty about the practical steps that firms should be taking to identify and deal with vulnerable customers, the FCA intends to consult on further guidance in this area in early 2019.

A duty of care? 

Another question raised in consultation was the potential need to introduce a new duty of care on firms obliging them to exercise skill and care in the provision of services to consumers. This is not a new concern for the FCA and feedback to this consultation showed once again that stakeholders are divided on the issue. 

In that context, the FCA has now also published a standalone discussion paper (DP18/5) designed to support its understanding of how a new duty could help to improve conduct standards. The FCA has not been specific on the legal form that such a duty might take at this stage: it is not distinguishing between the concept of a duty to take care and a fiduciary duty for example. The aim for the time being is to explore more generally how consumer protection could be improved by introducing a duty of this nature. 

The FCA is particularly interested in looking at where (if at all) the current framework falls short, both in theory and in practice. It highlights, for example, the potential impact of the Senior Managers and Certification Regime and whether the need for a duty of care will still exist if this new framework delivers the improvements in culture and governance that are anticipated. It also asks whether a new duty could do more to help address conflicts of interest or could give consumers better access to redress. 

The FCA is also inviting views on the most appropriate method for implementing this type of duty, for example through a new rule, through statutory intervention or through the extension of "best interests" principles. 

Next steps 

The extent of the practical impact of the Approach to Consumers on the FCA's supervisory work remains to be seen. In the meantime, firms must await further thinking from the FCA on both vulnerability and a duty of care. While the deadline for responses to the duty of care discussion paper is 2 November 2018, the FCA is not anticipating making any changes to its Handbook ahead of the UK's exit from the EU in 2019.  

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