A duty of care and potential alternative approaches
Evidence of poor outcomes for consumers, such as in the credit card and overdraft markets, front-book/back-book pricing, obsolete savings accounts, the insurance market and other areas, have led a number of stakeholders to question the effectiveness of current regulation in both preventing consumer detriment and quickly addressing the causes of harm when consumer problems do emerge.
This has resulted in calls for a duty of care to be introduced from the Financial Services Consumer Panel, the Lords Select Committee on Financial Exclusion, Parliamentarians from all the major parties (as part of the Financial Guidance and Claims Bill) and a range of charities and consumer groups.
In our response to the FCA’s discussion paper on this topic, we set out our support the introduction of a duty of care.
This would mean amending the Financial Services and Markets Act (FSMA), to place a duty of care on all financial services providers to ensure that they take an anticipatory approach in their dealings with customers, ensuring they are acting in the best interest of their customer, to remove or reduce the risk of harm. This should make clear that a firm cannot profit from consumer vulnerability, biases or constrained choices.
As our response sets out, through our work we see that good customer outcomes are not yet the heartbeat of financial service culture, despite the FCA’s continuing and clear emphasis on the importance of this.
In our view, the most significant reason for this is the still too poor articulation between regulatory expectations, firms’ culture and consumer outcomes. We believe this occurs because the existing FCA objectives, principles and rules do not create a sufficiently clear and transformative understanding of what an ‘appropriate degree of consumer protection’ is and what is expected in terms of good consumer outcomes.
Our response analyses wider gaps in current regulation, and considers how a duty of care, alongside other measures could strengthen this.
As well as introducing a duty of care, we also suggest the following:
- Amending and adding to the TCF outcomes
- Extending a specific vulnerability rule to all regulated activities
- Addressing proportionality issues
These would help embed the concept of duty of care in an understandable way throughout regulation. They are also changes the FCA could make whilst waiting for the legislative change needed to introduce a duty of care.
Download our response to read our full recommendations.
Download our duty of care response