Can 'complexification' of financial products survive the FCA's consumer duty?

This FT article makes an interesting point about the role of what it terms 'conplexification' in bank business models, and its potential incompatibility with the consumer duty. 

'Complexification' is described as the process of making a simple product more complex. In the context of retail banking this may include offering tie-ins, discounts, one-off fees, varying interest rates or fee rebates to name but a few. The net effect is that it becomes more difficult (if not almost impossible) for customers to compare the product in question with those offered by other firms. This is blamed for driving down competition and increasing the risk that consumer's don't pick the product that is best for them.

Can the FCA's proposed consumer duty prevent ths practice? Will firms' adoption of pricing policies of the type listed above contribute so clearly to poor outcomes for consumers so as to be obsolete? 

History suggests not. The writer points to part payments on credit cards and the practice of banks' applying these to the debt with the lowest interest rate first, leaving expensive debt untouched. This persisted despite the banks' obligation to 'treat customers fairly' and required a rule to outlaw the practice. In further, it might be harder to argue that this practice was a 'good outcome' for a consumer, or in their best interests (as the proposed consumer principle would require) reducing the need for rules-based policy interventions in such cases. However, these types of interventions are often the result of a nuanced consideration of how to resolve an intransigent issue (eg customer inertia in the case of the recent price rules introduced into ICOBs).  Some practices will still require market-wide rules to avoid first mover competitive disadvantage. Imposing a new consumer principle on the market will not negate the needs for these conversations. 

On our Consumer Duty campaign page, Linklaters' experts consider a range of potential issues and implications of the FCA's proposals. Click here to listen and read more