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Layers of complexity: cost of living and consumer outcomes

By Claire Nightingale | October 25, 2022

The duties owed by Financial Institutions to consumers could not be more relevant during the cost-of-living crisis
Financial, Executive and Professional Risks (FINEX)

As families and businesses grapple with the cost-of-living crisis, rising interest rates and significant challenges in the mortgage market, the duties owed by Financial Institutions to consumers could not be more relevant. What is the new consumer duty and to what extent will it add a new layer of complexity (and potential liability) for Financial Institutions and their insurers?

The new Duty

The UK Financial Conduct Authority (FCA) has long thought that there should be a higher level of consumer protection and now intends to set an enhanced standard of care with the introduction of the new duty in 2023. This duty aims to set higher and clearer standards of consumer protection for regulated entities, requiring them to put the needs of their retail customers first in respect of retail market business.1

The FCA’s Policy statement in this regard provides for a new Consumer Principle (Principle 12) that requires firms to act to deliver good outcomes for retail customers. This in turn is underpinned by “cross-cutting rules” providing greater clarity on regulatory expectations under the new Principle and helping firms interpret the four outcomes. These rules require firms to:

  • Act in good faith towards retail customers– this is a standard of conduct characterised by honesty, fair and open dealing and acting consistently with the reasonable expectations of retail customers. It is worth noting, however, that guidance indicates that acting in good faith does not require a firm to act in a fiduciary capacity (absent such obligation otherwise).
  • Avoid causing foreseeable harm to retail customers– firms must be both proactive and reactive in avoiding foreseeable harm, which can be caused both by act and omission.
  • Enable and support retail customers to pursue their financial objectives– where a firm is providing an execution-only or non-advised service, the firm can assume that the financial objectives of the retail customer are to purchase, use and enjoy the full benefits of the relevant product, unless, that is, the firm knows or could reasonably be expected to have known otherwise. A firm which provides advisory or discretionary services can rely on the financial objectives that its retail customers have disclosed to the firm (e.g., on the fact find) unless it knows or could reasonably be expected to have known that the disclosed information is manifestly out of date, inaccurate or incomplete.

In short, the rules require firms to consider the needs, characteristics and objectives of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the customer journey. As well as acting to deliver good customer outcomes, firms will need to understand and evidence whether those outcomes are being met in practice.

The obligations under the Senior Managers & Certification Regime (SMCR)

The FCA expects all firms to ensure that their governing body takes responsibility for ensuring the Consumer Duty is embedded in the firm, and senior managers will be held accountable under SMCR for customer outcomes. Further, the SMCR regime will be amended, to take account of the new Duty, by the addition of a new rule (Rule 6) requiring all conduct rules staff to act to deliver good outcomes for retail customers. This individual conduct rule will apply where the firm's activities fall within the scope of the Consumer Duty. Individuals must (to the extent that it is reasonable and proportionate) act in good faith towards retail customers, avoid reasonable harm to them and enable and support them to pursue their financial objectives (i.e., essentially making the individual subject to the same cross-cutting rules that apply to the firm).

But what about the old rules?

Where the Consumer Duty applies, Principle 12 will apply instead of Principle 6 (a firm must pay due regard to the interests of its customers and treat them fairly) and Principle 7 (a firm must pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading).

The new conduct rule (Rule 6) will be interpreted in accordance with a reasonableness standard. Where it applies, individual conduct Rule 4 (requiring the individual to pay due regard to the interests of customers and treat them fairly) will be switched off – i.e., Rule 4 and Rule 6 will be mutually exclusive.

What does this mean for the short-term?

As things currently stand the FCA has not introduced a private right of action in relation to the new Consumer Duty (such that there is no ability to introduce an industry wide consumer redress scheme under s 404 FSMA).2

Financial Institutions and their insurers should be mindful of the potential increased risk of claims to The Financial Ombudsman Scheme and to regulatory investigations potentially leading to fines and/or redress. As ever, the best advice is to ensure you are apprised of the obligations not only to your retail customers, but to your insurers in the event that you may wish to advance a claim for indemnity. Talk to a WTW broker on how we can assist in navigating these obligations.


1 FCA, Press Release,
2 FCA, Press Release,


Global Head of FINEX Financial Institutions Claims Advocacy


GB Head of FINEX Financial Institutions

Broking Leader, Financial Institutions and Professional Services Industry Division, North America

Global Head of FINEX Financial Institutions
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