Financial firms may be fined and stripped of their regulatory authorization unless they put their customers’ needs first under far-reaching reforms from the UK City regulator.
Banks, insurers and other companies will have to ensure their services are actually good for their clients and that this approach is taken at all levels of the business, Ian Searle, head of department for consumer and retail policy at the Financial Conduct Authority, said at a press conference.
Businesses will have to communicate in a way customers can understand, and provide services that meet consumers’ needs and come at a fair price. Companies will also be judged on their customer service, and face scrutiny on the speed at which they deal with complaints compared with the pace of sales.
“We don’t expect firms to treat every single consumer as if it’s their sister or brother but we do expect firms from a professional perspective to treat their consumers well and to support them well throughout,” said Sheldon Mills, executive director for consumers and competition.
The tougher standards for the sale of new and existing financial products will enter into force in 12 months, allowing for a three-month extension to the original time line following a push back from the industry, FCA officials said the regulator published details of the Consumer Duty rules Wednesday.
Boards should sign off on annual reports on how customers are treated, though there will be no requirement for these to be published. The FCA is keen to prevent consumers from being kept on hold for long periods of time though there will be no right for a customer to speak to a person when complaining.
Firms will get a two-year grace period for products that are no longer being sold. The duty will require firms to end rip-off charges and fees and make it as easy for customers to switch or cancel products as it was to enter into them.
In the US a narrower version of this rule has faced years of political reversals, delays, and lawsuits because of industry opposition. In the UK the FCA has been challenged over how broad the new rule will be.
Sara Cody, counsel in the financial regulation team at the law firm Linklaters, said financial institutions appear to back the reforms. “The aim to put consumers back at the heart of decisions and product development is very difficult to argue with,” she said in an interview.
Unlike retail banks, big investment banks will largely be outside the scope of the rules. However, this could change where they create products that are later sold to regular consumers. “It’s really targeted at products that are designed to exploit consumer bias or systems that nudge people toward doing things that are not in their best interest,” she said.
The regulation is one of the FCA’s most ambitious and far-reaching to date and many banks are underestimating its scope, said Ian Stott, head of financial services at legal compliance firm Konexo. “Banks will have to change the way their teams work, are structured and how they collect, collate, organize and evaluate data on their products,” he said. “This is not just huge cost in time and money, but cultural too.”
Heather Alleyne, UK financial services regulation partner at EY, said even with the FCA’s three-month extension of the implementation deadline, “many firms will find compliance in the short-term to be challenging.”
“Some firms still remain closer to the start line than the finish,” Alleyne added.
Copyright 2022 Bloomberg.
Interested in Carriers?
Get automatic alerts for this topic.