Lenders, lawyers and industry stakeholders have cautiously welcomed the new Consumer Duty as a net good for consumers, but one legal expert has described it as a “Trojan horse.”
The Financial Conduct Authority (FCA) released its highly-anticipated new Consumer Duty today (27 July), which requires all financial services firms, including peer-to-peer lenders, to set higher standards and put consumer protection first.
It has received a mixed response from financial services professionals, who have praised its efforts to protect consumer money, but expressed concern about the impact on smaller firms.
“The FCA’s new implementation period is a Trojan horse,” says Elisabeth Bremner, a financial services partner with law firm CMS.
“Driven by political pressure, it has ignored industry concerns and given very little ground.
“Clearly out of step with the firms it regulates, the FCA even says that firms should implement more quickly if they can!”
Mark Spiers, partner at Bovill, welcomed the efforts to place consumer protections front and centre of financial regulation, but pointed out that smaller firms will find it more challenging to implement.
“Whilst many firms have put fair treatment of consumers at the centre of their business for some time, this regulation requires a change of emphasis to look at fair outcomes,” he said.
“This change has been difficult for many smaller and medium-sized firms to interpret and implement to date, as a result some have been avoiding what they see as a difficult task and anticipating or hoping for a longer implementation timeline.”
Spiers added that consumer credit and lending firms in particular “need to consider it seriously” and map the new Consumer Duty across the every element of their business model in order to understand what the impact may be .
“For many firms it will be an evolution of the work they already do to treat their customers fairly, but some firms will have significant work to do to understand what achieving consistently fair consumer outcomes looks like for them and implement a robust set of systems and controls to achieve them over time,” he said.
Meanwhile, Neil Kadagathur, co-founder and chief executive of fintech lender Creditspring, noted that the Consumer Duty has come as the cost of living crisis mounts and pushes more people into debt.
“It is vital that these people are protected from unscrupulous lenders charging extortionate repayment terms,” he said.
“Ending high borrowing charges and fees will provide a lifeline for households who otherwise risk falling into an unmanageable debt spiral. By forcing lenders to provide clear and accurate information around charges and repayment terms, borrowers are empowered to make improved financial decisions.”
Matthew Connell, director of policy and public affairs of the Personal Finance Society, agreed that new consumer protections are necessary, saying: “We welcome the confirmation from the FCA that consumers having strong confidence and levels of participation in markets is one of the key outcomes that they are looking for from the Consumer Duty.
“No market can exist without the confidence of the public,” he added. “It is important that we measure the key elements of confidence and trust in order to identify areas where changes are needed and where more regulation would be unnecessary.”
However, others have called for more clarity on how firms should implement the rules.
“We support the FCA’s move to outcome-based regulation,” said Matthew Connell, director of policy and public affairs of the Personal Finance Society.
“However, we also understand the concerns of some firms that outcomes-based regulation may leave them with responsibilities for outcomes over which they do not have complete control.
“The FCA needs to be specific about the kind of culture and mindset that it is looking for within firms so that it can treat firms that are looking for the right answer but have not yet found it differently from firms that are not interested in improving consumer outcomes.”
Nick Bayley, managing director within Kroll’s financial services compliance and regulation practice, said that “firms should still not underestimate the amount of work that may be necessary to perform their gap analysis and then implement this significant change.”
“The regulator clearly believes that many firms do not sufficiently consider their retail customers’ interests and is placing the new responsibility for achieving good customer outcomes fairly and squarely on the shoulders of the firms’ governing bodies,” he added.
The regulations require businesses to end rip-off charges and fees, make it as easy to switch or cancel products as it was to take them out in the first place, provide helpful and accessible customer support, provide timely and clear information that people can understand to make good financial decisions, and provide products and services that are right for their customers.
In an open letter to fellow chief executives, Sam Seaton, chief executive of Moneyhub, said that while the new Consumer Duty presents “an alarming array of demands and challenges…it also presents an even broader array of opportunities.”
Seaton suggested that open finance could be a solution to help firms bridge any data gaps and reduce the cost of compliance.