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Dragon Communications

Publication date:

10 November 2021

Last updated:

15 November 2021


Society of Mortgage Professionals

The full definition of what having a ‘duty of care‘ to your customer/the consumer in general, means, has up until now often been somewhat vague and left up to the firm itself to define and the consumer to determine if that duty was exercised.

Soon, however, that simply won’t be the case in the retail financial services space, and mortgage advisory firms along with all others providing such products and services, will need to follow a ‘new‘ set of rules defined by the FCA.

The regulator itself clearly now feels authorised firms‘ ‘duty of care‘ towards consumers has been too vague, and that the catch-all principle of ‘Treating Customers Fairly‘ isn’t strong enough to hold firms accountable to, or indeed for consumers to fully understand what service they should (or shouldn’t) get.

This is why, back in May, the FCA proposed new Consumer Duty rules with three key elements:

  1. The consumer principle, which will reflect the overall standards of behaviour the FCA expects from firms. The wording being consulted on is: 'a firm must act in the best interests of retail clients' or 'a firm must act to deliver good outcomes for retail clients’.
  2. Cross-cutting rules which would require three key behaviours from firms: taking all reasonable steps to avoid foreseeable harm to customers, taking all reasonable steps to enable customers to pursue their financial objectives, and to act in good faith.
  3. It will also be underpinned by a suite of rules and guidance that set more detailed expectations for firm conduct in relation to four specific outcomes – communications, products and services, customer service and price and value.

I mention this now because a further consultation on the rule changes is expected by the end of this year with new rules likely to come into force after July 2022. The wheel of regulation never stops spinning and, once again, advisory firms are going to need to be fully au fait with the new requirements and what this might mean for their systems and controls, processes and customer interaction, and so forth.

This, of course, is not an area without some controversy with accusations that the FCA is effectively gilding the regulatory lily here with a set of requirements which effectively repeat what it already has at its disposal.

Part of the pushback against this ‘new‘ Consumer Duty back earlier this year focused on a belief amongst regulated firms – and many trade bodies – that the FCA has/had all the power it needs in this area without such new initiatives. That it wasn’t a question of requiring new powers, as such, but exercising and enforcing the ones it already had.

Many advisory firms, might quite rightly, say they are already carrying out these types of behaviours anyway, and they are working fully in line with the TCF catch-all, but as we’ve seen over the past decade, the notion of regulating by principle rather than rule went out of favour very quickly post-Credit Crunch.

Therefore you can appreciate the regulator’s interest in setting out these responsibilities to consumers, especially if it feels the protection they are currently afforded is not strong enough, and this is producing negative consumer outcomes as a result.

Understandably, the regulator is concerned about mistrust in advisory firms – indeed any regulated firm – and it certainly wants to ensure consumers are not continually blinded with science when it comes to the information they are presented with, or are placed in a position where their ability to understand is impinged.

We, of course, await the next stage in this process, but firms might want to already be thinking about the information provided by the FCA on this subject back in May and what that might translate to in terms of deliverables and changes to their business. The consumer’s presence at the centre of our world has never been in doubt, but the way in which we must deal with the consumer is – most likely – about to become even more prescribed.  

Bob Hunt is Chief Executive of Paradigm Mortgage Services

This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.