Describing the new UK Consumer Duty as “a gamechanger for us as your regulator”, Therese Chambers, Director of Consumer Investments at the Financial Conduct Authority (FCA), gave personal finance professionals a detailed explanation of why and how the new measure was being implemented.

Speaking at the Personal Finance Society’s Festival of Financial Planning in Birmingham, UK, she emphasized that: “Customer outcomes, rather than technical compliance with rules, are the focus of our thinking and they need to become the focus of your thinking too.” And, in a detailed address, she spent some time explaining the context in which the Duty, part of the FCA’s Consumer Investments Strategy, was being introduced.

She quoted research showing that the number of British adults holding investments, excluding property, had risen from 29% to 37% over the last five years. This was, she said, partly down to “the decline of defined benefit pension schemes and longer life expectancy” which meant “people are more than ever making complex financial decisions about their money”. But with the choice of products offered increasing, so have potential problems.

The FCA has found up to 5.7 million adults now hold investments classed as high risk, while reported fraud losses in the 2021/22 financial year rose 47% to £915m ($1,030m). Fear of the risks means that many potential investors are “afraid to dip their toes into the consumer investment market at all, leaving their assets on the shore and wasting away due to inflation” said Chambers.

Good outcomes for retail customers

This has left 9.7 million UK adults with more than £10,000 ($11,262) in investible assets holding 75% or more in cash – up 1.3 million since 2020. And while three quarters of consumers say they would not be comfortable taking investment decisions without expert support, the proportion taking guidance remains at 8%, the same figure as the previous year.

“It is clear then,” said Chambers, “that there is more to do to get the thriving Consumer Investment market the UK needs, and there is more that can happen in the financial advice space to enable that.” And that was the context from which the Consumer Duty emerged.

“The key change is the introduction of the Consumer Principle,” Chambers told delegates. “Firms must act to deliver good outcomes for retail customers – this imposes a higher and more exacting standard of care than the principle of ‘Treating Customers Fairly’. You also need to understand, monitor and act to deliver good consumer outcomes and to work actively to prevent poor outcomes.”

She went on to break down the four Consumer Duty outcomes and indicate what needed to be done to achieve them, and clarified the timetable. New rules will be introduced on July 31, 2023 – 12 weeks later than originally proposed. Closed products and services covered by the Duty have until July 31, 2024 to comply. The full text of the speech is available on the FCA website.