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FCA proposes customer 'duty of care' for financial firms


Financial firms could be made subject to a new duty of care, requiring them to exercise "reasonable skill and care" when providing services to consumers, the financial regulator has indicated.

The FCA intends to explore the issue in a new discussion paper, which will be published as part of a broader review of its handbook for firms after the UK's departure from the European Union. The FCA handbook currently requires that firms treat their customers fairly, and act in the best interests of their clients.

The regulator has raised the possible introduction of a new duty of care as part of a draft paper on its 'approach to consumers', which is the first of several promised documents following on from the publication of the FCA 'Mission' document earlier this year. The paper sets out the FCA's proposed approach to issues such as financial exclusion, firm and consumer responsibility and dealing with vulnerable customers, as well as how the regulator will adjust its approach to keep pace with the impact of new technologies on consumer behaviour.

Insurance expert Iain Sawers of Pinsent Masons, the law firm behind Out-Law.com, said that firms should closely monitor the FCA's developing approach.

"Although the FCA plans to issue a more detailed discussion paper on this issue at a later date, it certainly reflects another raising of the bar for financial services firms in the obligations they have towards retail consumers," he said. "It is also a feature of the consultation that warrants close attention now and going forward."

"The strongly consumer-centric approach by the FCA is a feature of financial services regulation in the UK which firms will be well familiar with. Many of the views expressed in this new consultation document therefore will not be unexpected or unfamiliar. There is a pressure on financial services firms, however, to increasingly create cultures with consumers at their core," he said.

"This can be challenging, not least because of issues described in the consultation like regulating for vulnerable consumers, where commitments can often be long-term and products and information can be complex, taking account of wider environmental challenges that are rapidly affecting how consumers of financial products make decisions, and addressing access and exclusion issues which can affect consumer wellbeing," he said.

The FCA is seeking views on its proposed approach until 5 February 2018, and will publish a final version later in the year.

The regulator published its 'Mission' document as a means of providing regulated firms and consumers with more clarity about how it will prioritise its resources in order to deliver its statutory objectives. Its latest paper confirms that firms should, as a starting point, treat customers fairly, and that they should market, sell and make products available in a way that "allows [consumers] to make informed choices".

Consumers are expected to take "reasonable responsibility" for the decisions they make about the financial products and services that they buy, according to the FCA. However, it notes that firms should "exercise extra care" and avoid exploiting "vulnerable" consumers, which it describes as people who "face challenges which mean they may not make the best decision for their particular needs". Firms should put policies in place to deal with consumers where there are "indicators of vulnerability" in place, for example, serious illness, bereavement or loss of income, it said.

The FCA also intends to use behavioural economics and data science to ensure that its approach to regulation keeps pace with the effect that new technologies are having on the behaviours of both consumers and firms, it said.

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