In December 2021 the FCA published a second consultation on its proposed new Consumer Duty together with feedback from its  first consultation in May 2021 which outlined its high level proposals. 

The FCA proposes that the Consumer Duty will be expressed as a new Principle 12 stating that, "A firm must act to deliver good outcomes for retail customers."  The FCA expects to make any new rules by 31 July 2022 and to give firms until 30 April 2023 to fully implement the new Consumer Duty.

Our Financial Regulation team has produced three webinars on the Consumer Duty:

Interaction of Consumer Duty with Principles 6 and 7

Where the Consumer Duty applies, the FCA proposes to disapply Principle 6 (Treating Customers Fairly) and Principle 7 (requirement for a firm to pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading).  The new Consumer Duty is intended to set higher standards than Principles 6 and 7.  The FCA intends to retain existing material related to Principles 6 and 7, but with the warning that they do not cover the FCA's expectations under the Consumer Duty in full.

Application across the distribution chain

The FCA intends that the Consumer Duty will apply to all firms engaging in regulated activities across the retail distribution chain, including where they do not have a direct customer relationship with the end user of their product or service.  In response to concerns raised by industry respondents to the first consultation, the FCA says that its proposed rules will apply proportionately, taking into account the firm's role in relation to the product or service.  Where firms outsource activities to third parties, they remain responsible for compliance.  The FCA generally expects firms with a direct relationship with the end user to have the greatest responsibility under the Consumer Duty.

Products and services sold before the Consumer Duty comes into force

The Consumer Duty does not have retrospective effect.  However, it does apply on a forward-looking basis to existing products or services whether or not they are still being sold to new customers.

No private right of action

The FCA has no immediate plans to provide a private right of action for breaches of any part of the Consumer Duty.  This means that consumers will not be able to take firms to court for a breach of the Consumer Duty.  The FCA says it is working closely with the Financial Ombudsman to ensure a common understanding of the Consumer Duty.

Our thoughts on the application of the Consumer Duty to SIPP providers

The application of the Consumer Duty to legacy products going forward has the potential to be a particular issue for SIPP providers who have purchased back books from other providers.  For providers who are planning future purchases of SIPP businesses, the question of how the Consumer Duty might impact the business in future is a key issue for due diligence.

SIPP providers need to consider how the application of the Consumer Duty across the distribution chain may impact their business, for example SIPP providers, fund managers and those involved in white labelled SIPP products will need to consider whether the service provided across the product is consistent with the new requirements.

For SIPPS with large product suites or complex product chains, the implementation date of 30 April 2023 may present a challenging deadline, particularly if there is a need to renegotiate existing commercial contracts.

Although SIPP members will not be able to bring a court claim for breach of the Consumer Duty, the approach of the Financial Ombudsman Service (FOS) is to decide complaints based on what is just and reasonable rather than the strict letter of the law.  It seems likely that the existence of the new Consumer Duty will impact FOS's view of what is fair and reasonable.

Jade Murray

Jade Murray

Partner, Pensions
United Kingdom

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