The FCA's proposed financial services consumer duty: striking a delicate balance…

The financial services industry is a complex ecosystem. There are numerous niches for a plethora of consumers, all built on an intricate reef of financial services firms, infrastructure and regulation.

Interventions sometimes are necessary. But they do affect the ecological balance – sometimes in unforeseen ways.

The FCA is seeking a “paradigm shift” towards outcomes-based regulation. It is moving forward on a proposed financial services duty to retail consumers. This may have far-reaching implications for consumers as well as for firms – even firms without a direct relationship with the consumer.

On the surface, the FCA's proposed new financial services consumer duty might look familiar. After all, English law has a well-developed tort of negligence with a duty of care at its heart. But the proposed financial services consumer duty would be codified, so its formulation (and the nature of the rules supporting it) will be important. For example: a new Principle is being contemplated, and two alternative and potentially distinctly different formulations are proposed: either a duty to "act in the best interests" of clients; or, a duty to "deliver good outcomes" for clients.

Additionally, the duty would extend to firms that are involved in the manufacture or supply of products and services to retail clients, even if those firms have no direct relationship with the end customer. This may disturb settled contractual allocations of risk and create MI challenges for those firms.

Implementation is expected as soon as mid-2022 so firms would be well-advised to start planning now.

Want our initial thinking on the above points and others of interest? Listen to our podcast episode in which dispute resolution partner Alison Wilson and financial regulation counsel Sara Cody discuss the FCA's consultation and consider the key aspects of the proposals and practical implications for firms.

And visit our financial services consumer duty webpage for more details including an infographic and the latest insights and podcast episodes from us as we publish them.