The case for change
In July 2018, the FCA published Discussion Paper 18/5 (DP 18/5) and sought views on whether a new statutory or regulatory duty should be introduced to provide additional protection for consumers. The FCA suggested that this new duty might be a duty of care or a fiduciary duty. DP 18/5 generated a wide range of responses, ranging from whole-hearted support to strong opposition.
- Most respondents called for changes to how the FCA applies the existing regulatory framework. They wanted the FCA to act more readily in applying the Principles in PRIN 2.1. They also wrote that the FCA should be more transparent about its standards for good customer treatment.
- Some respondents suggested that the Principles should be revised as a means of bringing about change without introducing legal complexity. They raised specific concerns that Principle 6 (“A firm must pay due regard to the interests of its consumers and treat them fairly”) is too vague and is not applied robustly enough.
- Some stakeholders considered that a new duty was needed to trigger fundamental change. A small group of them argued that a new statutory duty was needed to provide a legislative standard of care that everyone would have to pay regard to.
The FCA reviewed the responses and, in April 2019, published its Feedback Statement 19/2 (FS 19/2). The FCA concluded that whilst there was no clear case for a new statutory duty, it did have a clear mandate for change: most respondents to DP 18/5 considered that consumers needed better protection. The next step is for the FCA to put forward specific options for change and seek detailed views on them.
The upcoming consultation
The FCA recognises that any changes it makes will have a long-lasting impact. It commented in FS 19/2 that “there is unlikely to be a one-size-fits-all solution to any deficiencies in consumer protection”, which may explain its reluctance to support a new statutory duty of care.
The FCA has stated that its primary focus is on:
- Reviewing how it applies the regulatory framework – particularly how it applies the Principles in its authorisations, supervisory and enforcement functions, and how it communicates this to firms.
- Considering new/revised Principles to strengthen and clarify firms’ duties to consumers, including whether a potential private right of action for breaches of Principles is appropriate and what the unintended consequences of this might be.
Considerations for regulated firms
Existing consumer protection
Regulated firms will be mindful of existing consumer protections when responding to the consultation:
- Regulated firms must meet the standards of consumer protection that are set out in the Principles or risk enforcement action by the FCA. For example, regulated firms must conduct their business with integrity (Principle 1), conduct their business with due skill, care and diligence (Principle 2), pay due regard to the interest of customers and to treat them fairly (Principle 6) and pay due regard to the information needs of their clients (Principle 7). The FCA does not prescribe exactly how regulated firms should meet the Principles, which recognises that what might be appropriate for one regulated firm or one group of consumers might not be appropriate for another.
- The Senior Managers & Certification Regime (SMCR) complements the Principles, for example by requiring employees of FSMA-authorised firms to act with integrity, to act with due care, skill and diligence and to pay due regard to the interests of consumers and treat them fairly. The FCA and Prudential Regulatory Authority have enforcement powers under the SMCR.
- In addition, consumers have various routes to redress when things go wrong. They can seek redress from regulated firms through complaints channels and voluntary redress programmes, escalate complaints to the Financial Ombudsman Service (FOS), seek damages for losses suffered as a result of breaches of FCA rules (s.138D FSMA) and have recourse to the FCA and the courts in the event of breaches of relevant legislation and common law principles.
Regulated firms may wish to anticipate the consultation by thinking carefully about whether the types of changes that the FCA is considering would be appropriate and what how they would impact their businesses.
We expect that some regulated firms would welcome clarity from the FCA around their duties to consumers and how the FCA will apply the regulatory framework, provided that this does not give rise to a “one-size-fits-all” approach. Such clarity could enable firms to determine more readily whether their practices are adequate.
However, we anticipate that many regulated firms will be wary of the FCA’s likely proposal to introduce a private right of action for breaches of Principles. If such a right of action were to apply to breaches of all the Principles, it would cover a wide range of customer services disputes that are not actionable by consumers under the current regime (e.g. actions based on a failure by a regulated firm to “pay due regard to the interest of customers and to treat them fairly” (Principle 6)). Firms may question whether this would be necessary or desirable in addition to the FCA’s likely proposals to clarify the existing regulatory regime and to introduce new or amended Principles.
As regards desirability, it can be expected that the introduction of a private right of action for breaches of Principles would generate a good deal of litigation as the scope and applicability of the Principles is explored against the factual background of individual customers’ grievances. It would take a considerable time for case law to develop, which would introduce flux and uncertainty into the provision of regulated services, thereby increasing costs and potentially stifling innovation. Some regulated firms may question whether an actionable duty of care is necessary where the FOS already presents a process for resolving disputes which is binding on firms and which is flexible enough to provide redress whenever this would be “fair and reasonable”.
Observers will await the FCA’s consultation with interest and will be keen to understand the FCA’s proposed combination of changes, including the precise scope of any proposed duty of care. No doubt the FCA will welcome a strong set of responses.
 FCA website, ‘FS19/2: a duty of care and potential alternative approaches – summary of responses and next steps’ (as at 13 November 2020), link
 FCA Discussion Paper 18/5, ‘Discussion Paper on a duty of care and potential alternative approaches’ (July 2018), link
 FCA Handbook, PRIN 2.1, link
 FCA Feedback Statement 19/2, ‘A duty of care and potential alternative approaches: summary of responses and next steps’ (April 2019), link
 FCA Handbook, COCON, 2.1, link
 Relevant legislation might include the Misrepresentation Act 1967, the Consumer Credit Act 1974 and the Consumer Rights Act 2015, whilst relevant common law principles might include breach of contract, negligence and negligent misstatement