HM Treasury says it is up to FCA to evaluate duty of care

Maria Nikolova

A duty of care would impose an obligation on financial services companies to exercise reasonable skill and care in the provision of a service to consumers.

HM Treasury is reluctant to evaluate the merits of a proposed duty of care for the financial services industry in the UK. This becomes clear from a question/answer exchange between Labour MP Alex Sobel and Stephen Barclay of the Conservatives.

Alex Sobel has asked Mr Chancellor of the Exchequer, what discussions he has had with the Financial Conduct Authority on the introduction of the duty of care; and what the (a) process and (b) timescale is for introducing the Duty of Care.

Stephen Barclay’s written answer states:

“The government believes that the Financial Conduct Authority (FCA), as the UK’s independent conduct regulator for the financial services industry, is best placed to evaluate the merits of a duty of care for financial services providers. We therefore welcome the FCA’s commitment to publish a Discussion Paper on the subject, which the FCA plans to publish after the UK’s withdrawal from the EU”.

Let’s recall that the proposal for introducing a duty of care for the financial services industry in the UK has been circling around since the start of 2017. A duty of care would impose an obligation to exercise reasonable skill and care in the provision of a service. There are different opinions about the merits of introducing this obligation.

A number of respondents to an FCA consultation on this topic did not consider that a Duty of Care was necessary to help ensure that financial markets function well. These respondents argued that existing common and statute law already provide sufficient protections for consumers, and that bringing a case based on duty of case would translate into significant costs and would be time consuming.

However, a number of respondents either supported a Duty of Care or saw some merit in the proposal:

  • Some respondents stated that a Duty of Care would provide consumers with a legal right to take a case to court. This was supported by some comments that Principle 6 has not worked in practice or is too vague to provide meaningful protection.
  • Some respondents, including some firms, believed that a Duty of Care would improve the culture of financial services markets.
  • Some responses suggested that a Duty of Care would provide a clearer definition of responsibilities between consumers, intermediaries and firms. One firm said a Duty of Care might help shift the focus away from the FCA securing redress and place the emphasis back on the consumer-firm relationship.

Brexit will have a crucial role for any implementation of this duty, the FCA has noted. The UK’s decision to leave the EU is likely to create changes in the legislation which is at the basis of the FCA Handbook rules. The FCA is set to publish a Discussion Paper to explore the Duty of Care issue as part of a future Handbook Review, once the legislative position is clear.

The regulator recognises there are different opinions on the Duty of Care. The concept of a Duty of Care and fiduciary duty are sometimes used interchangeably in this debate, the FCA says. Although the Financial Services Consumer Panel (FSCP) proposes that the FCA should introduce a Duty of Care into its rules, the explanation for this view is based – in part – on concepts that are really part of a fiduciary duty. However, it is important to differentiate between the two. Whereas a Duty of Care imposes an obligation to exercise reasonable skill and care in the provision of a service. There are clearly different opinions about the merits of introducing this obligation. In contrast, a fiduciary duty requires (broadly) that the firm must not put personal interests above those of the client, must avoid conflicts of interest and must not profit from the firm’s position without the client’s knowledge.

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