In December 2021, the United Kingdom’s Financial Conduct Authority (FCA) issued a consultation paper publishing a revised proposed new Consumer Duty that would govern FCA-regulated firms’ interactions with retail clients. According to the FCA, the Consumer Duty would set “a higher standard of care” that would result in “a higher level of consumer protection in retail financial markets.” The Consumer Duty would be comprised of three key elements:

(1) the Consumer Principle – The proposed Consumer Principle would require firms to “act to deliver good outcomes for retail clients.” Firms would be required to “consistently focus on consumer outcomes and putting customers in a position where they can act and make decisions in their own interests.” The FCA acknowledged in the consultation that it is not possible for all clients to receive a good outcome (i.e., clients may lose money on an investment even if the firm acts in compliance with the Consumer Principle). However, firms would be required to “act reasonably to deliver good outcomes.”
(2) three so-called “cross-cutting” rules that would apply to all areas of firm conduct and which reflect the FCA’s expectations of how firms will apply the Consumer Principle; and
(3) four outcomes which provide more detailed expectations for the key elements of the firm-consumer relationship.

The Consumer Duty is targeted at interactions between firms and their retail client base and would apply to all firms in the distribution chain that can influence material aspects of the design, target market, or performance of a retail financial product or service. This would include firms that are involved in the design or operation of a retail product or service, the distribution of a retail product or service, or in the preparation of communications that are directed towards retail clients. While firms with direct retail client relationships would generally have greater responsibility under the Consumer Duty, product manufacturers, distributors, and platform providers would also be required to consider their obligations. The FCA anticipates that the Consumer Duty will “require a significant shift in both culture and behaviour” of regulated firms that will result in a “fairer, more consumer-focused and level playing field.” The FCA is seeking additional comment on the proposed rules by February 15, 2022 and expects to finalize the new rules by July 31, 2022.

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as of February 2022 and the contents of the Finance Bill. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.