The FCA’s new Consumer Duty: the investor perspective

Digital panel discussion with William Sweet, Director of Global Investor Services, Global Counsel; Lorraine Johnston, Partner at Ashurst’s Global Finance Regulatory Practice; Isadora Arredondo, Associate Director at Global Counsel’s Financial Services practice; and Felix Cazalet, CAIA, Senior Associate for Global Investor Services, Global Counsel, discussing the new Consumer Duty and the key changes the new Duty will bring.

It was a lively and informative discussion, with some key conclusions:

• The new Consumer Duty marks a shift from rules-based to outcome-based regulation and places the onus of compliance onto a broad range of firms serving retail customers. The Financial Conduct Authority’s (FCA) new Consumer Duty goes into effect in July 2023, marking a significant change in UK retail financial services. The regulatory change has emerged in response to the FCA’s rapidly-expanding remit in a financial services landscape characterised by a growing number of firms and increasingly-complex products requiring regulation. The Consumer Duty’s high-level, outcome-based approach expands the FCA’s authority to regulate firms that manufacture or distribute financial products. The rules introduce a new consumer principle, ‘cross-cutting rules,’ and ‘outcome rules’ outlining firms’ obligations to ‘deliver good outcomes for retail consumers.’ The new principle and rules will apply to all firms that serve retail consumers, a significant departure from the FCA’s previous approach. Firms will agree to implementation plans for the New Consumer Duty on October 31st, and the rules will come into effect for open products and services in July 2023.
• Government intervention in the Consumer Duty is possible, but significant changes are unlikely against the current political backdrop. The changes presented in the Consumer Duty may cause friction with the Truss government’s focus on growth. In particular, the changes proposed in the Consumer Duty potentially conflict with the ‘secondary objective’ for regulators to pursue growth and international competitiveness proposed in the Financial Services and Markets Bill. However, any significant intervention in the Consumer Duty may prove politically risky because of the increased attention placed on the cost-of-living crisis and burdens on retail consumers following the September ‘mini-budget’.
• The scope of the changes creates risks and opportunities for investors exposed to the UK financial services sector. Although the Consumer Duty is targeted at consumers and retail markets, its broad scope presents risks for institutional investors and the asset management and private equity industries. Key risks are the cost of compliance for firms (including changes to business models, products and services), financial and regulatory penalties for non-compliance and reputational risks posed by portfolio assets perceived to be ‘lagging’ in consumer protection. In addition to these risks, regulatory changes present an opportunity for investors to identify ‘disruptors’ that can effectively leverage the new rules and changes to consumers’ expectations.