The UK’s top financial regulator on Wednesday delayed long-awaited measures to protect customers and stopped short of banning charges, such as exit fees, which campaigners argue are inherently unfair.
The Financial Conduct Authority spent more than a year consulting with industry and consumer groups on proposals to end exploitative charges, improve customer services and make it easier to cancel unwanted financial products.
The FCA said the “consumer duty” recommendations will be introduced in most areas of the 60,000 companies it supervises by June 2023, three months later than originally planned after industry pleas for extra time.
Companies will have until June 2024 to apply the new protections to products that are no longer on sale, like old life insurance policies, as the processes around such products were more complicated to update, said the FCA.
The rules will not apply to investments in cryptocurrency or loans from “buy now pay later” companies, areas ripe for consumer rights abuse, as these lie outside the FCA’s jurisdiction.
FCA consumers and competition chief Sheldon Mills insisted the new regime would bring significant benefits to the UK at a critical time, as consumers face a cost of living crisis driven by rising food and fuel prices.
“The duty is going to fundamentally change industry behaviours by setting higher and clearer standards of consumer protection,” Mills told reporters.
He rejected suggestions that the overhaul was an admission of failings of the past regime which presided over the collapse of mini bond company London Capital Finance in 2019.
Under the proposals, companies must show they deliver good outcomes to customers and “avoid foreseeable harm” instead of merely demonstrating they have treated people fairly. Mills said that the reforms put the UK at the “forefront” of international consumer protection.
Companies will also have to ensure it is as easy for customers to cancel a product as to buy one, as well as improving call waiting times and conducting audits to ensure customers are not harmed by financial products.
Under the rules companies will be required to produce annual reports demonstrating how they are prioritising consumers’ interests.
Earlier drafts of the rules were criticised by campaigners for not being specific enough. The final package of measures does not include strict provisions on things including call waiting times or the types of charges that should be banned.
“We can’t be completely prescriptive,” said Millis, adding that while the FCA wanted customer service waiting times to be shorter, might be longer at certain times, for example, during systems outages.
The regulator’s treatment of exit charges — which apply to some mortgages and investment policies — would depend on whether customers were aware of the fees up front and if they were harmful.
The FCA will ask new companies to prove they have systems in place to comply with the rules, while using its “data-led approach” to identify and take action when existing groups are not complying.
“Where firms have breached the duty, we will use our full range of powers to tackle that . . . and we will hold firms and boards to account for these outcomes,” Mills said.
