Britain's financial watchdog reveals plan to bolster consumer protection
Britain's financial watchdog on Friday proposed new "consumer duty" rules for financial services to protect people from scams and mis-selling, which have tarnished the industry for decades.
Retail investors in Britain have suffered from mis-sold financial products, including endowment mortgages, pensions and payment protection insurance. Taxpayers are also having to help investors who suffered losses after the collapse of London Capital & Finance (LCF) investment firm.
The Financial Conduct Authority is proposing that financial services firms, which currently have an obligation to treat customers "fairly", would in future explicitly have to act in the best interest of retail customers when selling products or services, or act to deliver good outcomes. The wording will be finalised after a public consultation that closes in July.
This would require a significant shift in culture and behaviour for many firms who would have to demonstrate they took "all reasonable steps" to avoid foreseeable harm to their customers, the FCA said.
However, it stops short of the stronger statutory duty of care called for by some stakeholders to allow consumers to sue financial firms for redress.
Consumers currently must rely on the Financial Services Ombudsman, which was unable to compensate many LCF investors.
Under the proposed rules, firms that do no comply could face enforcement action.
Firms involved in making and supplying financial products and services would also be covered by the new rules, even if they are not in direct contact with the end customer, the FCA said.
Simon Morris, partner at CMS law firm, said the proposals mostly repackage current rules and policies for greater impact after the FCA was stung by LCF and other high-profile failures of supervision.
But if the option of forcing firms to deliver good outcomes was selected it would be a "toxic formula for creating undeliverable expectations", Morris said.
Sheldon Mills, the FCA's executive director for consumers and competition, said the measures were significant, though he recognised there was a debate to be had over whether it would be enough.
The watchdog is also consulting on the potential benefits of attaching a "private right of action" to the new duty to allow consumers to sue in court.
Any new rules would be drawn up by July 2022.