A CONSUMER DUTY

Why a new principle?

IFAs will all be familiar with Principles 6 and 7: the treating customers fairly principle and the requirement to be clear, fair and not misleading in all communications with customers. 

If you are not familiar with these, then it is back to school for you.  Most firms and individuals are sanctioned based on a failure of one or more of the 11 principles.  The principles are subjective, broad brush and, most important of all, they are rules.  Just as drive with due care and attention trumps all other speed limits, so principles trump all the thousands of other rules in the FCA rule book.

These principles have been around for years now, and they apply across all of a firm's business - including its unregulated activities.  That might surprise a few of you?  But consider that the giant PPI scandal, cost over £50bn  even more than the annual spend on road transport each year in the UK and it was built on an unregulated product.  In fact all General Insurance business and not just PPI, was not even regulated until 2005. The rules also apply equally to B2B business as to retail consumers.  

The FCA is a regulator that tackles harm taking place and it has tried, with an eye-watering lack of success, to prevent harm arising.  We can all subscribe to the mantra that prevention is better than cure but the reputational hit to the FCA of the scandals like British Steel, Woodford, AIG premier access bond, Arch Cru and minibonds has gone far beyond criticism of the FCA itself.  The UK Government now feels threatened by the ongoing semi-frauds in financial services.  

With that in mind, the Financial Services Act 2021 included a statutory requirement for the FCA to consult on whether it should make rules providing for a duty of care to be owed by authorised persons to their customers.  With backing from on high the FCA is now launching their new principle in an effort to right the balance.   Principle 12 comes into force on 31st July 2023.

Given the lengthy political process leading up to the launch of the new Principle 12  and with another twelve months to go, firms should expect significant attention on the actions they take in response to the policy papers.  They will be asked expect more surveys and answers will be required as to what you are doing to prepare.  

it is clear that the FCA specifically wants all firms in a distribution chain to think about whether what they do contributes to good outcomes, and Kirsty attached document indicates that IFAs and MGI firms will have to review its service and products before the start date of 31st July 2023.

IFAC will be helping you on that journey. 

(Download  only available to IFAC members - see BAT document library.)