The biggest regulatory shake-up of UK retail financial services for two decades will come into force on Monday in an effort to crack down on rip-offs and poor customer service.
The changes include stronger rules on value for money and giving fair pricing to all customers, with experts predicting that some older financial products that do not meet the new higher standards are likely to be removed from sale.
The “consumer duty” regime being brought in by the Financial Conduct Authority sets higher and clearer standards of consumer protection and means that financial companies – including banks and building societies, insurers and investment companies – must focus on delivering “good outcomes” for customers and preventing “foreseeable harm”.
Nisha Arora, a director at the FCA, said the consumer duty “raises the bar across all corners of finance, and will ensure firms equip their customers with information they can understand, products and services they need and that are fair value, and the right support when they need it”.
The regulator issued published research this week showing that less than half of UK adults had confidence in the UK financial services industry, with only 36% agreeing that most financial companies were “honest and transparent” in the way they treat them.
The cost of living crisis has prompted millions of squeezed consumers to turn to financial firms for help, from borrowers worried about the impact of higher mortgage rates to people seeking breathing space on debt repayments.
In May, the FCA said the number of people struggling to meet bills and credit repayments had risen by 3.1 million in 12 months to reach 10.9 million, while the number who had missed bills or loan payments had also risen sharply.
The new regime coincides with growing concern over “debanking” – where people or organisations have their bank accounts closed, typically with little or no explanation – after Nigel Farage said his account with the NatWest subsidiary Coutts was shut down because it disagreed with his political views.
Companies will also need to provide “helpful and responsive” customer service, to make it “as easy to use a product or service, sort out a problem, or switch or cancel, as it was to buy in the first place”. The FCA will also be clamping down on financial jargon in paperwork.
Rocio Concha, the director of policy and advocacy at the consumer body Which?, said the new regime was the FCA’s response “to what it sees as too many customers being ripped off in financial services”
The duty “should have wide-ranging consequences” and mean, for example, that the terms and conditions of insurance policies become easier to understand, banks alert customers to better savings rates and lenders proactively help mortgage customers in financial difficulty with tailored support, she said.
Claire Carroll, a partner at the law firm Eversheds Sutherland, said: “This is the biggest regulatory change in the last 20 years – there’s no doubt it is a big deal.
“The FCA has set up a specific unit called the consumer duty intervention team, with the remit of acting swiftly if a risk of consumer harm is identified.”
Carroll said one of the challenges for companies was around older products that might not meet the new standards. “That might be capable of being fixed, but where it can’t, we will see them being withdrawn from the market,” she said.
For some large businesses, working out how the duty applies and to which customers “is a huge undertaking”, with the biggest challenge being posed in sectors such as motor finance, product warranties and store cards, where the financial product is secondary to the main sale, said Carroll.
