Watchdog targets rip-off fees and bad service
New rules aim to end “rip-off” charges and make it easier to switch or cancel services provided by financial services companies.
Providers will also be ordered to ensure consumers more clearly understand what they are buying and are not left waiting on the phone to make enquiries or complaints.
The new Consumer Duty, introduced by the Financial Conduct Authority, is designed to “fundamentally improve” how firms serve consumers.
“Higher and clearer standards” of consumer protection across financial services will require firms to put customers’ needs first.
Providers are being given 12 months to implement the new rules for all new and existing products and services that are currently on sale.
They will be extended to closed book products 12 months later, to give firms more time to bring these older products, that are no longer on sale, up to the new standards.
The changes will affect 60,000 financial firms from banking to insurance, but do not yet include buy now, pay later services and cryptocurrency businesses.
Sheldon Mills, executive director of consumers and competition, said: “The current economic climate means it’s more important than ever that consumers are able to make good financial decisions. The financial services industry needs to give people the support and information they need and put their customers first.
“The Consumer Duty will lead to a major shift in financial services and will promote competition and growth based on high standards. As the Duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.”
Matthew Upton, director of policy at Citizen’s Advice, said: “Customers should get good service at a fair price. Yet time and time again we see firms overcharging loyal customers, selling poor products and making it tricky for shoppers to make careful, informed decisions.
Analysts warned the success of the new policy will depend on the regulator’s willingness to clamp down on firms that are breaking the rules.
Tom Selby, head of retirement policy at AJ Bell, said: “Firms offering products and services that are still for sale will be given 12 months to implement the requirements, so-called ‘closed-book’ firms no longer selling new products have been given until 2024 to comply.
“The FCA will likely receive some flak for this decision, especially given much of the worst detriment in terms of things like high charges and poor service often sit squarely with firms no longer actively trying to win new business.
“The regulator might argue closed-book providers need more time to update antiquated systems, but that will come as little comfort to customers stuck in poor value products and receiving unsatisfactory service.”
He added that there continues to be weaknesses in the new policy.
“The inconvenient truth is that ‘good’ firms are likely to already be meeting much of the regulator’s new expectations, while ‘bad’ firms are often flouting the existing rules.
“To raise the laggards up to the standard of ‘good’ firms, the FCA will need to demonstrate ‘bad’ firms will be punished.
“The Financial Ombudsman Service (FOS) will also play a critical role in interpreting the Consumer Duty on the ground.
“There is a very real risk that spurious complaints will be made against firms by Claims Management Companies (CMCs) looking to take advantage of the new standard.
“The regulator will need to watch CMCs like a hawk and come down hard on any dodgy behaviour.”
He added: “The Consumer Duty brings to a head the arguments around the boundary between guidance and advice.
“If the full benefits of the Duty are to be realised, the FCA – or possibly the Government via legislative reform – will need to provide clarity on this boundary.
“Without such clarity, there is a risk customers will receive sub-optimal levels of support when making often complex financial decisions.”