The new FCA Consumer Duty

On 31 July 2023 the FCA introduced a new Consumer Principle which requires ‘firms to act to deliver good outcomes for retail customers’. The FCA now wants to see regulated firms deliver a higher standard of customer care and protection, and to go further to equip customers to make effective decisions in their interests.

The rules impact all firms which distribute or manufacture products and or services to retail customers. The proposals will require firms to review their product suite, communications and end-to-end customer journey, and to consider changes in areas including governance and accountability, product design, pricing, distribution, servicing and staff training.

There are now a set of overarching cross-cutting rules which develop and amplify the standards of conduct that the FCA expects under the Consumer Principle. A firm must now act in good faith towards a retail customer which includes the obligation to avoid foreseeable harm as well as enabling and supporting retail customers to pursue their financial objectives.

One interesting question which arises is how the new Consumer Duty will impact upon a bank’s dealings with a retail client. Under English Law, there is no implied duty of good faith between a bank and a customer in relation to a loan. Those who have sought to assert that such an implied duty of good faith exists have to date received short shrift from the Courts and no real assistance from the FCA although the FCA did introduce a redress scheme for retail customer who were sold interest rate hedging products following the 2008 financial crisis.

An interesting question arises whether the new consumer duty will assist retail clients who seek to challenge onerous or unsuitable terms  in loan documentation. The starting point is that it is not possible to base a private action by a customer against a bank on a breach of a Principle. In addition, a redress scheme cannot be imposed by the FCA solely in reliance of a breach of a Principle.

At the very least this new Consumer Duty will have the possibility of creating serious tension between banks and retail clients although individual complaints to the FCA about one banks toxic product may not result in action against the bank unless the sale of the same type of toxic product was carried out by several banks. Indeed, recent case law suggests the FCA may not have the powers to be able to impose a redress scheme on a single bank.

Many retail clients in due course may be quite disappointed with the outcome of this new Consumer Duty because not only does it not give them a civil cause of action but also the retail customer is unlikely to be the beneficiary of a redress scheme if it relates to the activities of a single bank.

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