What the new Consumer Duty rules mean for your finances

New regulations coming into force at the end of July should signal good news for customers of banks and other financial services firms.

The introduction of new “Consumer Duty” rules is “one of the biggest shake-ups to retail financial services regulation”, said the banking trade body UK Finance.

They create a requirement, from 31 July, for all regulated firms to “deliver good outcomes for retail customers”, explained the Financial Conduct Authority (FCA). That means you should be treated better when accessing financial services such as savings, loans and mortgages.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

Firms must be able to show how they consider the “needs, characteristics and objectives of their customers”, in everything from products, pricing and consumer support, the City watchdog said.

A firm’s board or equivalent will be “responsible for assessing whether it is delivering good outcomes for its customers”, explained KPMG, and will need to decide what “type, frequency and level of granularity” to go into to provide this information if asked by the regulator.

How will the new rules help customers?

Financial services are often seen as unethical, explained MoneyWeek, so the Consumer Duty aims to “spark a fundamental shift” by putting customers first.

It includes “bold promises” to end financial rip-offs, remove business jargon from products and improve customer service, said the Financial Times, so consumers can make the “best possible financial decisions”.

The hope is that consumers will be better supported, the Daily Mirror reported, and vulnerable customers who are “more susceptible to harm” will get additional care.

Financial advisers are still “unclear” about what a good consumer outcome means, however, said Money Marketing, with many concerned about the risks of complaints, investigations and penalties.

What is a good outcome?

Good financial outcomes have to be “at the heart” of everything regulated firms do, the Financial Times stated.

However, the FCA is “slightly vague” when it comes to what a good outcome means, added MoneyWeek, as it doesn’t dictate how products should be sold.

To help, the City watchdog has set out guidance on four outcomes that it would like to be met by firms, these cover products and services, price and value, consumer understanding and support.

Good outcomes “will be different depending on the customer’s needs and objectives”, said Cater Allen.

There are also fears that the Consumer Duty could push up the prices of products such as advice fees as firms cope with extra compliance costs.

Research by wealth manager Quilter claims a third of advisers “feel they have no choice but to increase fees”, said FT Adviser, as they fear their profitability will decline due to the Consumer Duty.

Will the Consumer Duty make a difference to customers?

Some are “sceptical” about the impact of these new rules, Rupert Jones wrote in The Guardian, but firms are already making positive changes in response.

Santander has made its previously online-only e-Saver and e-ISA accounts available in-branch and via telephone as well.

Others “may follow suit” and make their online-only products available to non-digital customers – boosting fairness and access, said Jones.

Under the rules, it should be “as easy” to switch to a new product and cancel and complain as it was to sign up in the first place, said MoneySavingExpert.

As a result, it is likely financial information such as charges and product objectives will become easier to understand.

However, the rules only cover new products available after 31 July, said the Daily Mirror, and will be extended to “closed book products” that are no longer on sale next year.

One area that also doesn’t yet fall under the Consumer Duty is social media “finfluencers”. The FCA said it has recognised a “significant increase” in notoriety of financial influencers promoting regulated financial products and said there is a “potential for consumer harm”.

The regulator is consulting on new social media guidance to highlight the risk of unauthorised people, as well as regulated firms, promoting financial products online without properly outlining the pros and cons.

Lucy Castledine, director of consumer investments at the FCA, said the regulator wants social media users to “stay on the right side” of its rules, adding that action will be taken against those “touting products illegally”.