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.

Read this next

Retail FX

ThinkMarkets expands CFDs lineup to over 4000 ETFs and shares

ThinkMarkets has expanded its service offering by incorporating 2500 new CFDs on shares and ETFs on its ThinkTrader platform.

Retail FX

France regulator warns investors of Omega Pro, Businessempire.fr

France’s financial markets regulator alerted investors that scams related to Omega Pro Ltd are beginning to circulate, with the blacklisted firm capitalizing on the situation to run a range of “unrealistic” offers.

Digital Assets

Web3 platform Grand Time paid $2 million in token earnings to date

Community-driven Web3 platform Grand Time said its offering – which includes a multifaceted platforms and its native token – has been gaining significant traction highlighted by impressive operational metrics.

Institutional FX

FX volumes at MOEX halved in April as ruble gains gorund

Currency trading at Moscow Exchange (MOEX) halted its upward route in April as monthly volumes nearly halved from a month earlier.

Digital Assets

FTX US adds stock trading, fractional shares to crypto platform

FTX US, the American subsidiary of crypto exchange FTX has kicked off stock trading feature to its customers in an effort to compete with popular platforms such as Robinhood and eToro.

Industry News

UK FCA empowered to remove brokers’ permissions in 28 days

Businesses with permissions they don’t need or use, risk misleading consumers. These new powers will enable us to take quicker action to cancel permissions that are not used or needed.

Industry News

CFTC charges $44m Ponzi scheme but millions may have fled to foreign crypto exchange

The CFTC alleged that defendants transferred millions of dollars to an off-shore entity that, in turn, may have transferred funds to a foreign cryptocurrency exchange. None of these funds were returned to the pool.

Technology

Saxo Bank deploys Adenza to address Basel and EBA requirements

The integration of ControllerView will enhance Basel-driven capital calculations and reporting at Saxo Bank in support of the bank’s multijurisdictional capital and liquidity reporting requirements throughout Denmark, Switzerland and UK, with plans to expand into the Netherlands.

Executive Moves

ComplySci appoints CTO, CPO, and CLO to further regtech’s product expansion

ComplySci offers compliance software used by more than 1400 global institutions to identify risk and address regulatory compliance challenges.

<