From July next year, a new consumer obligation will come into effect, requiring financial services companies to put their customers’ needs first.
This duty will set higher and clearer consumer protection standards, the Financial Conduct Authority (FCA) said.
In its final rules and recommendations, the FCA said: “We want to see greater consumer protection in retail financial markets, where firms compete aggressively for consumers.”
It states that companies must understand the needs of their customers and be able to support them.
The document says: “This is especially important as consumers face increasing pressure, including in relation to the cost of living.
“Even before there was cost-of-living pressure, consumers were being asked to make more complex and important decisions in a faster and more complex environment.”
Some firms present information in a way that is misleading or difficult to understand, while some sell products or services to consumers that do not suit them or offer fair value, or provide poor customer service and support, the FCA said.
The duty includes the consumer principle that “the firm must act to deliver good results for retail clients.”
The shake-up will require companies to act with integrity, avoid causing foreseeable harm, and provide customers with the opportunity and support to achieve their financial goals.
The duty will include requiring firms to make it as easy to switch or cancel products as it is to take them out in the first place, with an end to “fraudulent” fees and charges.
Companies will also need to provide helpful and accessible customer support without making people wait so long for a response that they give up, the regulator said.
They will also need to provide timely and clear information about products and services so that consumers can make sound financial decisions, rather than hiding key information in long, small print.
The regulator also expects businesses to provide products and services that suit their customers and target a variety of needs, including people in vulnerable circumstances.
One question firms can ask themselves is whether they apply the same standards and capabilities to deliver good customer outcomes as they do to increase sales and revenue, the FCA said.
For example, companies may ask themselves whether customer support communications are as clear as those used to sell a product.
They may also ask themselves if the quality of any post-sales support is as good as the pre-sales support.
The rules will come into effect in stages.
For new and existing products or services that are open for sale or renewal, the rules go into effect on July 31, 2023.
For closed products or services, the rules go into effect on July 31, 2024, giving firms more time to bring older products that are no longer on sale to the new standards.
Previously, a nine-month implementation period ending April 30, 2023 was proposed.
But the FCA document says industry respondents find it “very difficult” and some may decide to simply withdraw products or services if the implementation period is found to be too short.
This should not be a reason for firms to delay trainingVince Smith-Hughes, M&G Wealth
Vince Smith-Hughes, Director of Specialized Business Support at M&G Wealth, said: “It’s great to see the FCA is taking the feedback from the consultation into account and giving firms more time to implement the rules and guidelines.
“However, this should not be a reason for firms to delay preparations.”
The FCA said it will measure the success of the changes by tracking key consumer outcomes; for example, by reviewing the decisions of the Financial Ombudsman Service on consumer complaints about fees or charges or improper sales of products or services.
He will also use his Financial Lives survey to track how people are feeling.
His 2020 Financial Lives survey found that only 10% of consumers strongly agree that they trust the UK financial services industry, with another 32% partially agree. Only 35% agreed that firms are honest and transparent in their dealings with them.
Sheldon Mills, executive director of consumer protection and competition at the FCA, said: “The current economic climate means it’s more important than ever that consumers are able to make the right financial decisions. The financial services industry must provide people with the support and information they need and put their customers first.
“The Consumption Tariff will bring major changes to the financial services industry and promote competition and growth based on high standards.
“Because the duty raises the bar for the firms we regulate, it will prevent some harm from happening and make it easier for us to act quickly and decisively when we discover new problems.”
Joanna Elson, chief executive of the Money Advice Trust, which manages the national debt line and the corporate debt line, said: “The introduction of the new consumer tax marks a watershed moment in financial services consumer protection and builds on the work of the FCA in recent years. to improve support for people in vulnerable circumstances.
“At a time when the finances of millions of people are experiencing enormous pressure, I am encouraged by the regulator’s emphasis on higher and clearer standards of protection, which should provide greater clarity for consumers and companies alike.”