The UK’s top financial regulator has warned it will take “stronger action” against firms unprepared for new consumer protections coming into effect in less than three months, after it discovered flaws in plans to implement the landmark reform.
The Financial Conduct Authority said on Wednesday it had reviewed how 14 companies proposed to prove to consumers that their products and services offer “fair value”, or that their price is commensurate with their potential benefits.
The principle is a key aspect of the FCA’s new “customer duty” package and obliges banks, asset managers and other providers of regulated financial services to prove they are acting in the best interests of customers.
The new rules, which come into effect on July 31 and are among the FCA’s top priorities for 2023, have proved controversial. Some experts have dismissed them as “woolly” and some companies have complained about their implementation burden. City Minister Andrew Griffith has said privately that he also shares the industry’s concerns about the duty’s potential to trigger a wave of compensation claims.
In an update on Wednesday, the FCA said that while many firms had made “significant efforts” in preparing for the new consumer duty, there were shortcomings in virtually every area of implementation.
The regulator urged the thousands of other companies covered by the rules to scrutinize the findings of its review and ensure their plans highlight “areas for improvement”.
“We will prioritize the most serious breaches and act quickly and decisively where we find evidence of harm or risk of harm to consumers,” said Sheldon Mills, the FCA’s executive director of consumer and competition.
He added that companies “can expect us to take stronger measures such as intervention or investigation with possible disciplinary sanctions in some cases”.
Flaws identified by the FCA include companies relying “at least in part” on “high-level or unconvincing arguments that their business models or principles are inherently fair”. Others were found to be using a common paradigm for assessing fairness across different markets and ignoring profit margins in assessing whether products and services are reasonably priced.
The regulator called on some firms to rely on “average results” rather than looking at individual cases and identifying “how they plan to monitor fair value, what data they intend to use or how they will address the data”. Also called to rely on. gaps”
Elizabeth Bremner, a financial services partner with law firm CMS, pointed out that the FCA finalized the details of the rules last July and said she hoped regulators would give “grace” to firms “where they can show they have acted in good faith.” have done.to execute the duty and prioritize the higher risks.
