On 7 December 2021, the FCA published Consultation Paper 21/36 ‘A new Consumer Duty – Feedback to CP21/13 and further consultation (CP21/36).

CP21/36 follows Consultation Paper 21/13: A new Consumer Duty (CP21/13) which the FCA published in May. In CP21/13 the FCA set out a package of proposals for a ‘Consumer Duty’ consisting of:

  • A new Consumer Principle, which sets an overall standard of behaviour that the FCA wants from firms.
  • Cross-cutting rules that develop the FCA’s overarching expectations for common themes that apply across all areas of firm conduct.
  • A suite of rules and guidance setting more detailed expectations for firm conduct for four specific outcomes representing the key elements of the firm-consumer relationship.

In CP21/36 the FCA sets out:

  • The responses it received to CP21/13 and its analysis of them.
  • Revised proposals for a new Consumer Duty.
  • The proposed draft rules, and Handbook and non-Handbook guidance to help provide examples of behaviour that could lead to outcomes which would be likely or unlikely to satisfy the Consumer Duty.

The structure of CP21/36 is as follows:

  • Chapter 3: proposed scope of the new Consumer Duty. Among other things the FCA is proposing to align the scope of the Consumer Duty with the existing scope of FCA sectoral sourcebooks. For example, for mortgages, the Consumer Duty would follow the position in the Mortgage Conduct of Business Sourcebook. The draft rules in CP21/36 set this out in more detail.  The FCA also proposes to continue applying Principles 6 and 7 to firms dealing with wholesale or retail customers outside the scope of the Consumer Duty. Furthermore the FCA proposes to apply the Consumer Duty to unregulated activities which are ancillary to regulated activity.
  • Chapter 4: FCA expectations on how the Consumer Duty will apply to existing products and services, including contracts entered into before the Consumer Duty comes into force. The FCA’s proposals include that for closed products and services firms would be expected to identify whether there are aspects of the design of the product or service which mean they are not meeting the cross-cutting rules. Where a firm is taking action to comply with the Consumer Duty in respect of any product or service with existing contracts, the FCA would not expect firms to give up any contractual rights they had a firm expectation of being able to enjoy, although they would be free to do so. Firms would instead need to consider alternate ways to prevent harm for existing customers. Appropriate actions would depend on the context.
  • Chapters 5 to 10: proposals for the Consumer Duty. This comprises a new Consumer Principle (chapter 5) being ‘A firm must act to deliver good outcomes for retail clients’. This Principle would replace Principles 6 and 7 for retail business and require firms to act to deliver good outcomes for retail clients. Cross cutting rules (chapter 6) set out how firms should act to deliver good outcomes. The cross cutting rules require firms to (i) act in good faith (ii) avoid foreseeable harm, and (iii) enable and support retail customers to pursue their financial objectives.  The FCA has provided draft guidance which clarifies that the Consumer Duty does not create a fiduciary relationship where one does not otherwise exist, nor require advice to be provided where it would not have otherwise been required. Having considered the responses to CP21/13 the FCA has removed reference to ‘all reasonable steps’. The FCA also covers four outcomes under the Consumer Duty which relate to (i) governance of products and services (chapter 7), (ii) price and value (chapter 8), (iii) consumer understanding (chapter 9), and (iv) consumer support (chapter 10). Among other things in line with existing product governance requirements in the Handbook, the FCA proposes to set different requirements for firms depending on their role in the distribution chain.
  • Chapter 11: how the Consumer Duty aligns with the FCA’s work to improve outcomes for consumers in vulnerable circumstances and on diversity and inclusion.
  • Chapter 12: private right of action (PROA). The FCA is not proposing to introduce a PROA for the Consumer Duty at this time but will keep this under review.
  • Chapter 13: proposed implementation period. The FCA considers at this stage, that firms should have until 30 April 2023 to fully implement the Consumer Duty. The FCA is, however ,keen to hear the views of respondents on this now that they have seen the full package of proposals.
  • Chapter 14: the FCA’s expectations for how firms monitor consumer outcomes and its high level approach to supervision. This would include an expectation that a firm’s board, or equivalent management body should consider a report from the firm assessing whether it is acting to deliver good outcomes for its customers which are consistent with the Consumer Duty, at least annually.
  • Chapter 15: proposed changes to the Senior Managers and Certification Regime (SM&CR).The FCA proposes to amend the SM&CR individual conduct rules in the Code of Conduct sourcebook to reflect the higher standard of the Consumer Duty by adding a new rule requiring all conduct rules staff within firms to ‘act to deliver good outcomes for retail customers’ where their firms’ activities fall within scope of the Consumer Duty. The FCA is also proposing to include obligations as part of this new individual conduct rule that reflect the Consumer Duty’s cross-cutting rules. This means that, where the new rule applies, conduct rules staff will be required to: (i) act in good faith towards retail customers (ii) avoid foreseeable harm to retail customers, and (iii) enable and support retail customers to pursue their financial objectives.

The deadline for comments on CP21/36 is 15 February 2022. The FCA expects to confirm any final rules by the end of July 2022.

Parliament has also called strongly for a change to the standard of protection for consumers, and the publication of CP21/36 meets the FCA’s obligations under the Financial Services Act 2021.