What is the FCA Consumer Duty?

The FCA Consumer Duty is a set of rules enforced in the UK from 31 July 2023. Its main goal is to focus on customers, put their needs first, and make sure they get better results when using financial services. 

Consumer Duty is a principles-based approach where culture matters. Primarily, the Duty looks at the outcomes that financial companies achieve for their customers. They have an obligation to be clear and fair in their dealings, especially the fair treatment of vulnerable customers.  

There are three main parts to the Consumer Duty

1. Principle 12 - The Consumer Principle

“A firm must act to deliver good outcomes for retail customers.” Financial companies must act to benefit their customers and think about their needs. 

2. The Cross-Cutting Rules 

These rules shed light on how companies fulfil Principle 12.
  • Act in good faith and be open and honest about the products they sell 
  • Avoid foreseeable harm to customers, and be proactive in dealing with customer issues 
  • Enable and support customers to pursue financial objectives

3. The Four Outcomes 

These outcomes go into more detail on how to implement Principle 12 and the Cross-Cutting Rules (FCA Handbook: Chapter 2A of PRIN)   

1. Products and services should be designed to meet the needs of customers. 

2.  Price and value of products/services should be fair and reflect the value of the benefits customers receive. 

3. Consumer understanding requires firms to communicate with customers in a way that they understand, at the right time, and that helps them make informed decisions when buying a product/service. 

4. Consumer support is necessary throughout the customer journey and businesses should make sure the product/service meets their needs and they understand it, especially vulnerable customers. 

Who falls under Consumer Duty?

Consumer Duty applies to all financial companies that serve retail customers in the UK - such as banks, insurers, and investment firms - from those that develop products through to distribution and post-sale activities. (See the FCA’s FG22/5 Final non-Handbook Guidance for firms on Consumer Duty for more details.)

The FCA will be responsible for enforcing the Consumer Duty using a risk-based approach. They will supervise companies, investigate those not complying, and take actions like fines or banning individuals from the industry.  

While Consumer Duty has benefits for customers and companies, it also presents challenges. The benefits it brings include better outcomes, fairer treatment, and a more competitive market. On the other hand, companies need to understand and follow the new rules, which may increase costs, and they must change their culture to prioritise customers first.  

Finally, Consumer Duty is a positive step for customers as it aims to improve their experiences with financial services.

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