Does anyone seriously believe the Financial Conduct Authority’s new Consumer Duty requirements will fundamentally change the regulatory landscape in financial services?
I don’t. And I suspect that, deep down, few advisers do either.
Why such cynicism? Probably because we’ve all been here before. It is now 17 years since the FCA’s forerunner, the Financial Services Authority, launched its Treating Customers Fairly (TCF) initiative.
Embedded in the key principle of the TCF regime was an expectation a regulated firm must “pay due regard to the interests of its customers and treat them fairly”. This was subsequently distilled into six key outcomes.
Inappropriate advice has continued, with regulators seemingly unable to prevent continued misselling scandals
They were that consumers should be confident they were dealing with firms where the fair treatment of customers is central to corporate culture; that products and services met the needs of identified consumer groups; that consumers received clear information before, during and after a sale; that the advice they received was suitable for their needs; that the products they were provided with performed as they were told to expect; and finally, that there were no “unreasonable” barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.
How have financial services firms measured up against these six outcomes? The verdict is mixed, if we’re honest.
While advisers and providers have inched their way forward towards delivering improved services and products in some areas, inappropriate advice and products have also continued, with regulators seemingly unable to prevent continued misselling scandals.
While TCF was not a complete failure, the facts on the ground suggests more ethical firms were never particularly affected by the principle they should treat customers fairly because they already strived to do so – while less ethical ones carried on doing what they would have done anyway. And now, they’re dressing up the same TCF outcomes as “consumer duties”.
‘Champions’ are not only powerless but risk becoming captives within their businesses
Which brings me to the next point: the underlying FCA expectation that, unlike TCF, firms will effectively self-police their activities in order to comply with Consumer Duty requirements.
Under the “old regime” the regulator was expected to review a firm’s data and decide if they had delivered fair outcomes to consumers. If there was evidence they had not met TCF, there was always the possibility of a more comprehensive review of that firm’s business by the FCA. As we know, regulatory scrutiny has consistently failed to prevent scandals from re-occurring.
Under Consumer Duty, we are being told, the onus is on the firm to police itself and ensure it is delivering good outcomes to its customers. Rather than automatically reporting potentially negative data to the FCA, a regulated business now escalates it internally to board level. A so-called “Consumer Duty Champion” will sit on each board to ensure these principles are embedded at the highest level.
That simply isn’t enough. Lots of organisations, especially in the public sector, have “champions” in place at some level within their structures. Their role is to be standard bearers for the principles that supposedly guide the organisation they are part of.
Consumers will rediscover in years to come how weak the rules meant to protect them really are
But the problem seen again and again, not least in the most recent scandal in Cheshire involving clinicians trying to whistleblow on the murderous activities of children’s nurse Lucy Letby, is that without clearly defined operational independence, as well as external backing from watchdogs able to scrutinise and intervene quickly in their support, “champions” are not only powerless but risk becoming captives within their businesses.
The central issue Consumer Duty conspicuously avoids is the need for regulators to use their powers for early detection and intervention, to nip potential risk events in the bud before they occur and to provide credible external processes where both consumers and whistleblowers can feel confident they will be listened to and their concerns will be acted on.
Sub-contracting monitoring of a set of amorphous principles to hapless internal “champions” is a recipe for disaster, both within firms and for consumers, who will rediscover in years to come how weak the rules meant to protect them really are.
Nic Cicutti can be contacted at nic@inspiredmoney.co.uk
The facts on the ground suggests more ethical firms were never particularly affected by the principle they should treat customers fairly because they already strived to do so – while less ethical ones carried on doing what they would have done anyway.
That is the nub of all human interraction. All increased bureaucracy does beyond a certain level is increase the cost to the end user, and we are way past that point now.
It is likly to end up as another case of striving for the perfect at the expense of the good and not punishing the bad.
Spot on, Stuart.
Perhaps disaster is overstating things somewhat, but the Consumer Duty is, without doubt, a recipe for nothing to change except advisers’ workloads and costs to clients.
The FCA’s modus operandi remains the same as ever ~ it does precious little actual regulating, preferring instead to create endless boatloads of new regulations which, being unenforced, just weigh down the good guys and are ignored by the bad guys.
Those of us who are treating customers fairly and doing our best will continue to do so. The CD has changed nothing in our firm, apart from absorbing over a hundred hours of my time writing up the bumf on it, which I could have better used for the benefit of my clients.
Likewise, it’ll change nothing in the bad micro-minority. In the last 20 years I’ve had cause to report two individuals and two firms. Of the individuals, the FSA closed one down eventually, circa 2010-2011, after I got the trade media to take it up. (The regulator had ignored me for a year.) The last I heard of him, a crook/nutcase from Halifax, he had a YouTube channel where he was telling the desperate and gullible that he could cure cancer with the assistance of his personal Angel, Thomas. The other individual is still in the business despite being guilty of blatant mis-selling, impersonating a client, and data theft on a massive scale. He’s made of asbestos, apparently. Wonder why?
Of the two firms I reported, one was LCF, about which no more needs saying. The other was Portal LLP which at the time called itself Portafina before changing its name back to Portal and failing, dumping its liabilities on the FSCS, i.e., us. I reported their pension transfer operation some years before it failed. Recently, pro bono, I got £80k compensation for a client whose pension they’d funnelled into the multiple failed ‘Cherish’ investments. Portal has now apparently phoenixed as Portafina IML, and the FCA has ignored all my questions as to why they have allowed that to happen.
When will the FCA start fulfilling its duty to consumers?
I don’t think Consumer Duty changes much in the advisory world (20% of the population?). Conversely, I think it has huge implications for product providers especially those in DC pensions who make up the other 80%.
If customers got any guidance it was a seminar on joining their new employer scheme and a referral to Pension Wise/Money Helper near retirement. None of it specific to their circumstances.
These people need much more help to understand the impact of their actions either in terms of their loss, if they don’t join or later stop contributions, or when they take their pension and discover much of it disappears in tax (because they took it all at once) or screws up their UC claim.
Just look at the 6 scenarios in the “Interaction with the Consumer Duty” section of this note:
https://www.fca.org.uk/firms/helping-firms-provide-more-support-customers-making-investment-decisions
I’m sure all IFAs address such for their clients but how about members of big DC schemes?
For example, in response to question 3: would they be told that if they are on UC and worried about the cost of living that the DWP is effectively paying their pensions contribution so cancelling them will leave them no better off?
That’s what Consumer Duty is all about.
Gosh Nic – Right on target! What is so sad is that you, as an impartial observer, will get the same response from the regulator as the decent advisers who have been saying exactly the same – nothing.
It really boils down to a less than optimal regulator sitting in its Ivory Tower and handing down impositions to justify its existence and exorbitant salaries and costs.
Whilst, the article is accurate it seems a waste to aim at financial services alone. As the author points out the problem of “champions” and their ineffectiveness is common across the civil service and public bodies generally in which more weight is given to the appearance of action rather than taking it.
Making predictions is usually foolish, but here goes, I believe five years hence there will be fewer advisers in the UK and the advice gap larger than ever.
Advisers reviewing their businesses today have increased incentive to adjust their ideal client profiles to even wealthier clients than they serve currently.
Well, the CD is fundamentally flawed. The Financial Catastrophe Authority talks about firms assessing ‘value’. But ‘value’ is entirely subjective. An exchange only takes place when both seller and buyer think they are getting value. But different people put differing levels of value on the same things.
Plus if you read the CP you will see that the first 4 pages are a list of unsupported assertions, and bureaucratic bias and prejudice. In short a complete straw man. This makes the succeeding 63 pages junk.
All the CD is is yet another existence justifying exercise by an entirely failed and utterly self-serving bureaucracy. A bureaucracy with zero democratic, legal or financial accountability and no skin in the game. It’s the technocratic managerialist class at play.
A plague on all their houses.
Is there something about confusing activity with achievement …?