FCA proposes new consumer duty, to ensure stronger protection for retail clients

Karthik Subramanian

The Financial Conduct Authority (FCA) has been known to be one of the strictest regulatory authorities around and they added more regulations post-Brexit as well. If that were not enough, the FCA has announced a new Consumer Duty, which will be added regulation to give a higher level of protection for retail consumers in the financial markets.

In their release, the FCA has stated how the consumers continue to have very low confidence in the financial sector and how they wished that the financial firms would be more transparent and honest in their dealings with them.

This has prompted the FCA to expand its existing regulations as part of their new Consumer Duty which the financial firms would be expected to follow henceforth. This Duty would have 3 key elements:-

  1. The Consumer Principle, which will reflect the overall standards of behaviour the FCA expects from firms. The wording being consulted on is: ‘a firm must act in the best interests of retail clients’ or ‘a firm must act to deliver good outcomes for retail clients’.
  2. Cross-cutting rules would require 3 key behaviours from firms, which include taking all reasonable steps to avoid foreseeable harm to customers, taking all reasonable steps to enable customers to pursue their financial objectives and acting in good faith.
  3. It will also be underpinned by a suite of rules and guidance that set more detailed expectations for firm conduct in relation to 4 specific outcomes – communications, products and services, customer service and price and value.

The FCA hopes that these new principles would bring in a big shift in the way that the financial firms conduct business and in the culture that is seen in these firms. The FCA hopes that the firms remember that it’s the consumers who are the Kings and they need to be given all the information truly and honestly.

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: ‘The package of measures we are proposing will enhance our existing rules and is designed to tackle the harms we see in financial services markets, and their causes, as well as put consumers in a stronger position to make good decisions.

‘We want firms to be putting themselves in the shoes of consumers and asking ‘would I be happy to be treated in the way I treat my customers?’. We want consumers to be able to advance their financial well-being and build positive futures for themselves and their families.’

Though the FCA is one of the most trusted regulatory authority in the world and it sets the bar very high for the firms regulated by it, in terms of regulation and in terms of fees as well, the changes and additions to the regulations every few months seem to be imposing a lot of burden on the brokers and other financial services companies.

These firms will have to spend a lot of time and money trying to adhere to all the strict regulations and they also need to make sure that they are abreast of the latest changes as well. Also, all these new rules tend to put off many retail traders and high-risk investors and so, the firms are forced to go offshore so that they have a wider user base to solicit from.

With many offshore regulatory authorities ready and eager to take such business, all these additional and cumbersome regulations become self-defeating beyond a point as these financial firms would rather shift their business offshore than put up with such regulation.

Read this next

Digital Assets

GK8 now allows clients to control their digital assets as they would their fiat

“As the institutional market is increasingly turning to self custody, our policy engine empowers them to automate transactions, approvals, and even crucial workflows, while providing the highest degree of security, consistency, governance and control.”

Digital Assets

Retail CBDCs in the UK: “Welcomed” by CryptoUK and R3, but “Dystopian” for ETC Group

“At this stage, we judge it likely that the digital pound will be needed in the future. It is too early to decide whether to introduce the digital pound, but we are convinced preparatory work is justified”, said the BoE and HM Treasury.

Institutional FX

Centroid taps Iress API to provide retail brokers with real-time market data

“It has always been a challenge to have an efficient, elegant solution for market data and order execution for retail brokers, but with Iress we have found absolutely the right partner to add to our client offering.”

Digital Assets

Ramp launches FCA-approved off-ramp product, onboards Brave, Trust Wallet, Ledger

“To obtain and maintain our FCA registration, we must meet and operate within their strict anti-money laundering and counter-terrorist financing standards. This is a huge achievement for us, as compliance is a cornerstone of our business and what we stand for.”

Institutional FX

State Street launches FIX API for Fund Connect ETF platform

“Expanding from proprietary APIs to the FIX industry standard will bring us closer to our goal of 100% digital interactions. This is another example of innovations we’ve brought to our operating model as we celebrate 30 years of servicing ETFs since the launch of SPY.”

Industry News

HollyWally opens office in Portugal to bring B2B2C wallet-as-a-service platform to Europe

“We looked at a number of centers for startups throughout Europe and were attracted straight away to Lisbon. There is great Government support and enthusiasm for startups, it’s well positioned between our Asian and US offices, it’s a cost-effective city in which to base a fintech and it’s a beautiful place.”

Retail FX

Eightcap integrates Acuity’s economic calendar for trade ideas on MT4 or MT5

“By incorporating Acuity’s cutting-edge AI technology into our platform, we are able to offer our clients a powerful new tool that will help them stay ahead of the markets. We are committed to providing an extensive range of tools and educational resources that will enhance our clients’ trading experience and allow them to trade smarter.”

Digital Assets

Fuse Network powers Web3 economy, payments with ‘Fuse 2.0’

Web3 payments revolution startup Fuse Network announced the release of ‘Fuse 2.0.’ alongside a new roadmap, whitepaper, and fresh branding aimed at bringing crypto payments to the mainstream global economy.

Inside View

Private Equity Renaissance

Recent years have seen a resurgence in the concept of trading physical equities, with a slew of new arrivals joining the market for what is arguably one of the oldest forms of investing. But what has been the driving force behind this change in momentum?