The UK Financial Conduct Authority (CIF) the trend towards consumer protection is intensifying. At the same time, it is preparing to become a more assertive regulator, intervening more frequently, like its American counterparts. So what about businesses?
FCA’s business plan and strategy demonstrate a clear intention to leverage greater consumer protection within the financial services industry. The FCA clarifies that “many consumers do not know what good looks like”; when it is clear that the population of vulnerable consumers is increasing. A clear example of FCA’s ambition is the introduction of Consumer Duty, which FCA describes as “an integral part of our regulatory approach and mindset”.
To further strengthen consumer protection, the FCA plans to improve the redress framework. It will do this by setting and testing standards, encouraging companies to be more responsive to consumer and market needs. He expects to see an increase in the overall speed of resolving business complaints. This will be measured by the proportion of complaints closed within three days, between three days and eight weeks and after eight weeks.
Additionally, the FCA wants to get more involved in how companies handle complaints, particularly where it believes it would be more efficient for the company to resolve the complaint without referral to the Financial Ombudsman Service. FCA intends to have a more direct relationship with consumers and will use new “perception measures” to measure the perceived effectiveness of FCA interventions. He admits this may lead to an increase in complaints in the short term, as his new measures make consumers more aware of bad business practices.
There’s an old adage: more haste, less speed. The FCA and PRA have criticized the companies in recent enforcement notices for prioritizing speed over quality in investigating complaints and errors. Clearly, there is a balance to be struck and CAF is considering the feasibility of measures that better capture the fairness of complaint resolution. In the meantime, an open dialogue with the regulator might be the best way to understand where the balance is.
Forget the soft-soft approach
FCA wants to become more “innovative, assertive and adaptive”. Last September, Nikhil Rathi pledged to make the FCA a regulator that “trials [its] powers to their limits», an intention that is repeated in the latest Business Plan and Strategy.
For example, the FCA intends to enforce a more robust permissions regime and the removal of “problem companies”. The number of cancellations and withdrawals will be monitored and any increase considered a measure of success. The FCA is strengthening its ability to intervene in real time by mobilizing dozens of dedicated employees. He also reaffirmed his willingness to accept a higher level of legal challenge.
It remains to be seen whether this more assertive position will lead to increased market integrity and better outcomes for consumers.
The substance as the form
FCA’s plan to set and test higher standards has been elevated to one of the three key commitments of the business plan. We have already mentioned the imminent introduction of Consumer Duty. The FCA also plans to increase its interventions on non-compliant financial promotions.
Another area of focus is the FCA’s commitment to driving positive change in its ESG-related work (namely its November 2021 ESG Strategy) through:
- increase consumer confidence and protection against misleading marketing of ESG-related products;
- seek high-quality climate and sustainability information in the marketplace; and
- active investor management.
Following the introduction of its rules on operational resilience, the FCA wants to ensure that companies’ important business services are resilient to operational disruptions. It reaffirms its commitment to specifying what, when and how companies must report operational incidents.
What should companies do at this stage?
While the FCA’s intentions are clear and there are obvious enforcement risks for businesses in the areas outlined above, we will have to wait and see how this new approach translates into regulatory oversight and increased enforcement action, and how quickly that will happen.
When it comes to the new Consumer Duty, we’re unlikely to see any enforcement investigations into this before the end of 2023 and the FCA has already said it intends to focus on the most misconduct. serious issues that it identifies in this area. In the meantime, businesses can take steps to keep pace with this changing regulatory landscape, including:
- Examine the company’s regulatory relations strategy in light of a more assertive regulator.
- Review operational and cyber resilience frameworks and incident management protocols (including associated customer communication manuals).
- To comply with the new consumer duty, conduct relevant gap analyzes and review the company’s approach to implementation in a timely manner before April 2023.
- Seek early support if you find yourself subject to a formal regulatory review, for example, a qualified person review.
Where risks or weaknesses are identified in a company’s planning and arrangements in these areas, specialist advice should be sought as soon as possible.