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A new duty of care for financial services firms?

Account manager using tablet with graphics icons. Print publication

20/07/2018

The Financial Conduct Authority (FCA) is considering a new consumer protection duty of care for financial services firms.  Walker Morris Banking and Finance Litigation partner Louise Power explains.

FCA’s focus on consumer protection

In November 2017 the FCA published its consultation paper Our Future Approach to Consumers to start the discussion about measures it will take to protect consumers in compliance with its strategic and operational objectives.

Following on from that the FCA has, on 17 July 2018, published its Approach to Consumers document, which sets out the FCA’s vision of what a well-functioning market looks like, when and how the FCA will act to protect consumers, and its policy positions on key issues.  The document also gives a further insight to the wide range of powers that the FCA has at its disposal to ensure that consumers – particularly including some of the most vulnerable people in UK society – are protected.  Importantly, the document also confirms that, following consultation responses that the FCA’s revised definition of vulnerability [1] risked narrowing the definition and shifting the responsibility more towards the consumer to self-identify a vulnerability, the FCA is now reverting to its original definition of a vulnerable consumer [2], which is: “someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care”.

A new duty of care?

At the same time, the FCA has also published a discussion paper to explore whether there is a need to impose a new duty of care on financial services firms which could enhance good conduct and culture and provide additional protection for consumers.

The FCA has confirmed that, while it has regard to the general principle that consumers should take responsibility for their decisions, there are factors (not least, vulnerability) that might limit their ability to do so and consequently as a result, the level of care provided by firms should be appropriate for their capabilities. The discussion paper explains that some stakeholders have voiced concerns that the current regulatory framework may not effectively prevent harm to consumers nor protect them appropriately. However, others disagree, believing that existing FCA rules already provide sufficient protection for consumers and impose the same requirements on firms that a duty of care would.

The purpose of the discussion paper is therefore to prompt an open debate about the potential merits of a duty of care; what form such a duty could take; what alternatives approaches might address any concerns; and to ensure that the FCA understands the consequences of any changes it may make.

The discussion paper invites responses to specific questions, to support the FCA’s thinking on this topic. In summary, these are:

  • Do you believe there is a gap in the FCA’s existing regulatory framework that could be addressed by introducing a New Duty, whether through a duty of care or other change(s)?
  • What might a New Duty for firms in financial services do to enhance positive behaviour and conduct from firms in the financial services market, and incentivise good consumer outcomes?
  • How would a New Duty increase our effectiveness in preventing and tackling harm and achieving good outcomes for consumers? Do you believe that the way we regulate, results in a gap that a New Duty would address?
  • Should the FCA reconsider whether breaches of the Principles [3] should give rise to a private right for damages in court? Or should breaching a New Duty give this right?
  • Do you believe that a New Duty would be more effective in preventing harm and would therefore mean that redress would need to be relied on less? If so, please set out the ways in which a New Duty would improve the current regime.

Next steps

The FCA welcomes discussion and feedback on what is, no doubt, a highly important and complex debate. This consultation will be open until 2 November 2018.

If you would like any further information, or if you would like any assistance with a response to the consultation, please contact Louise or any of Walker Morris’ Financial Services specialists.

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[1] introduced in the Future Approach to Consumers consultation
[2] from Occasional Paper No 8 Consumer Vulnerability
[3] the FCA’s Principles for Businesses in its Handbook

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