Financial sector skeptical of FCA’s plan to shake up the rules


A planned overhaul of consumer protection by the UK’s financial regulator is “moot and fuzzy” and could go beyond what it can offer, consumer groups and financial services companies have warned.

Nikhil Rathi, chief executive of the Financial Conduct Authority, said a new set of rules called ‘consumer duty’ will be one of the agency’s top priorities, imposing stricter requirements on businesses to ensure that ‘they act in the best interests of their clients.

But industry and consumer groups have expressed doubts about the success of the reformulated FCA rules in their ambition to “fundamentally change the mindset” of regulated financial services groups, such as insurers, banks and investment providers.

“The obligation to consume gives a very good sense of direction. But I have serious doubts as to whether the FCA can actually do it, ”said Mick McAteer, co-director of the Financial Inclusion Center, a nonprofit think tank.

McAteer, a former FCA board member, said a major weakness is that companies will not be required to compile regular and consistent reports on their compliance with the new standards. “It will be very difficult to know whether it actually works or not,” he said.

Tim Fassam, director of policy and government relations at the Personal Investment Management & Financial Advice Association, a trade group, said the proposed rules remain unclear.

“The FCA has placed great emphasis on consumer obligation which is fundamental in its approach to regulation and supervision,” said Fassam, but the draft standards are “somewhat academic and vague”.

Rathi is seeking to re-energize the FCA, prevent financial scandals and tackle lingering complaints that some UK businesses are charging excessive fees for substandard services.

The draft rules released by the watchdog this week will raise the “level of due diligence” on financial firms, the FCA said, exceeding current expectations that firms “treat customers fairly.” The new approach asks businesses to put themselves in their customers’ shoes and requires that “all businesses focus on good customer outcomes.”

The regulator said it would increase its scrutiny of areas such as so-called “sludge practices” aimed at discouraging customers from leaving substandard products, and marketing tactics that lead customers to unsuitable options. , along with complex fees and poor customer service.

However, Rathi pointed out the limitations of the FCA’s mandate for clients who buy crypto assets. Speaking to members of the Commons Treasury Select Committee on Wednesday, he said the FCA needed to draw a “fairly clear line on where… Compensation should be payable” in the Financial Services Compensation Scheme, which he is actually revision.

The FCA chief said that, without prejudice to the outcome of the consumer rights consultation, “I would suggest that we simply say that anything crypto related should not be entitled to compensation, so that consumers are clear about this. “

Financial services companies broadly welcomed the FCA’s focus on results for clients, but said the regulator needed to focus on enforcing existing standards rather than rewriting the rules.

“The inconvenient truth is that the majority of ‘bad’ financial services players either flout existing rules entirely or take a botched approach to treating clients fairly,” said Tom Selby, head of retirement policy at AJ Bell .

“The regulator says it plans to be more assertive in its dealings with companies that do the wrong thing – this will be crucial in achieving better results for consumers.”

UK Finance, which represents the banks, said: “A number of questions remain as to whether consumer obligation is the best way to meet FCA’s goals, as well as the timelines for implementation.”

Consumer advocates also praised the spirit of the FCA rules, but questioned whether they would be successful in holding companies to account.

McAteer said the focus on testing the suitability of new products and empowering business leaders “could be a really positive step,” but that “it all depends on how they are supervised and applied.” .

One area where the new rules could bite is exit fees, which the FCA has flagged as potentially “discouraging[ing] consumers to leave products or services that do not suit them ”.

“Exit fees are a recipe for scams,” said Moira O’Neill, head of personal finance at Interactive Investor, the funds supermarket. “That said, we are alarmed that the regulator distinguishes between ‘unreasonable’ exit charges – all exit charges are unreasonable.”

Some personal finance activists were more optimistic that the new rules could make a difference. Martin Lewis, founder of financial news site MoneySavingExpert.com, which campaigned for the new standards, said the shift to a “proactive” duty to serve clients’ best interests was one of the biggest changes. regulations for decades.

“It’s a really radical upheaval. I’m quite surprised the FCA were brave enough to do it, but I’m very happy they did, ”Lewis said on ITV. Hello Great Britain. For example, Lewis said that under the new rules, a bank would have to notify a customer who was getting a low rate on their savings account and encourage them to switch to a better rate.

Financial companies have expressed relief that the FCA has withdrawn from measures that would allow customers to sue companies for breach of the new obligation. Steven Cameron, director of pensions at Aegon, said he “welcomed” the decision not to introduce the right to sue, “which would have created more complexity and uncertainty.”

A previous version of this article indicated that Nikhil Rathi had made comments to the Treasury Committee on the applicability of the consumer obligation to crypto assets. It has been amended to reflect that it relates to the Financial Services Compensation Scheme.


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