The High-Level Standards Block of the FCA Handbook includes the Principles for Businesses Sourcebook (PRIN), which confirms the Principles that underpins how the FCA regulates our industry.

 

The Consumer Duty means that a new Principle 12 has been created: A firm must act to deliver good outcomes for retail clients. This doesn’t mean that customers are no longer responsible for the decisions that they make, but it does mean that firms have to take responsibility for judging whether what they do serves the interests of their customers and delivers good outcomes.

 

Principle 12 requires firms to act to deliver good outcomes for retail clients. The three cross-cutting rules that support it are:

 

• A firm must act to prevent customers from coming to foreseeable harm
• A firm must act in good faith towards retail customers
• A firm must enable and support retail customers to pursue their financial objectives

The FCA states it is expecting the Consumer Duty to drive a “significant shift” in the mindset of the financial services industry towards good consumer outcomes, such as those that we just looked at.

 

The Consumer Duty is intended to set higher expectations for the standards of care that firms provide to consumers, with a firm needing to consider the new measures “at every stage of its processes and at every level of its organisational structure”.

 

Firms should be asking themselves:

 

Would I be happy to be treated in the way that we treat our customers?

 

Would I recommend our products and services to my friends and family?

 

Overlap between this new Principle and Principles 6 and 7

 

Given that there is a considerable overlap between this new Principle and Principles 6 and 7, the new Consumer Duty Principle will replace those Principles for firms that provide advice and services to retail clients. The FCA has said that the Consumer Duty imposes a higher standard than Principles 6 and 7.

 

The scope of the Consumer Duty aligns with existing areas of the relevant Conduct of Business Sourcebooks: in the investment sector, it will be aligned to COBS; for insurance, it will follow the position in ICOBS; and for mortgages, it will follow MCOB.

 

Principles 6 and 7 will still apply to firms that do not deal with retail customers (albeit that application to non-retail firms was always extremely limited), and the existing rules and guidance around those two Principles in the FCA Handbook have not changed.

 

The SM&CR and Principle 12

 

The Senior Managers and Certification Regime (SM&CR) establishes clear senior management accountability and responsibility for the Firm’s activities, including the Consumer Duty. All senior managers will be responsible for ensuring that the Firm complies with the requirements of the Consumer Duty on a continuing basis.

 

For everyone under the SM&CR, the Conduct Duty has unearthed a new rule to be added to the Code of Conduct (COCON), wherein all staff who are subject to the Conduct Rules must act to deliver good outcomes for retail customers. This is underpinned by three rules:

 

• You must act in good faith towards retail customers
• You must avoid foreseeable harm to retail customers
• You must enable and support retail customers to pursue their financial objectives