FCA Consumer Duty must be accompanied with clarity for firms and understanding of their business models

2 August 2021

FCA Consumer Duty must be accompanied with clarity for firms and understanding of their business models

PIMFA, the trade association for wealth management, investment services and the investment and financial advice industry, welcomes the introduction of a new Consumer Duty by the Financial Conduct Authority (FCA) but the new duty must be accompanied with greater clarity over any new regulatory expectations placed on firms and a reasonable assessment of firms’ ability to discharge their obligations under the duty.

While PIMFA supports the FCA’s desire to address the harms the Consumer Duty is intended to tackle, it is unclear to us why the FCA feels it requires new powers when it already has many powers at its disposal.

PIMFA is particularly concerned that the new duty could lead to a situation in which the Financial Ombudsman regulates in hindsight with firms falling foul of elements of a duty they didn’t know existed. Ultimately, this will lead to firms trying to second guess how the regulations should be applied unless they are given quite clear and specific guidance, driving up costs for some firms or leading to regulatory failure for others.

PIMFA is also urging the Regulator to give due consideration to the broader regulatory architecture and how its proposals may interfere inadvertently with business models – specifically in the Execution Only market. Previous work linked to the Financial Advice Market Review concluded that almost any recommendation with any degree of personalisation crossed the boundary. This would create a tension between what services firms have permissions for and are willing to provide, and the execution of a consumer duty.

Liz Field, Chief Executive of PIMFA, commented:  

“We share the desire of the Regulator to eliminate many of the harms which it identifies in its Consumer Duty consultation. However, it is yet to clarify why it needs new powers to address these harms rather than use the ones that it already has.

“The very real risk that we see in these proposals  introduce a higher level of expectation on firms, without providing the necessary clarity, granularity and guidance, which underpin the FCA’s proposals for a Consumer Duy.

“In doing so, they increase the chances of regulatory failure for firms which are currently unwilling, or unable, to meet their obligations, and place increased cost and administrative burdens on firms which do.  

“This is indicative of a long-standing criticism we have of the Regulator. When harm occurs in the market, it seeks to introduce new rules rather than understand whether or not the rules already in place could be enforced better and be accompanied by fit for purpose supervision.

“In giving due consideration to a consumer’s best interests, we are particularly concerned that under Consumer Duty proposals, firms will now be required to provide recommendations and services to people with a degree of personalisation. This runs a significant risk of forcing firms to cross into giving a form of advice which would in turn, create a tension between what services firms have permissions for, and are willing to provide, and the execution of a consumer duty.”

See PIMFA’s full consultation response here.

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About PIMFA – the Personal Investment Management & Financial Advice Association

• PIMFA is the trade association for firms that provide investment management, investment services and advice to everyone from individuals and families to charities, pension funds, trusts and companies.
• The sector currently looks after £1.65 trillion in private savings and investments and employs over 63,000 people.
• PIMFA represents both full and associate member firms. Full members provide a range of financial solutions including financial advice, portfolio management, as well as investment and execution services. They assist everyone from individuals and families, to charities and pension funds, all the way to trusts and companies.  Associate members provide professional services to the PIMFA community.
• PIMFA leads the debate on policy and regulatory recommendations to ensure that the UK remains a global centre of excellence in the wealth management, investment advice and financial planning arena. Our mission is to create an optimal operating environment so that its member firms can focus on delivering the best service to clients, providing responsible stewardship for their long-term savings and investments.
• PIMFA has made numerous recommendations to the FCA regarding the Future of Advice, the Future of Supervision, & the FSCS levy – read more.
• PIMFA was created in 2017 as the outcome of a merger between the Association of Professional Financial Advisers (APFA) and the Wealth Management Association (WMA) with a history as a trade association since 1991 – read more.
• Further information can be found at pimfa.co.uk

Contact

For further information on this release or other press matters please contact:

Matthew West, PIMFA PR Manager – MatthewW@pimfa.co.uk, +44 (0)20 7382 0376 / +44 (0) 7843 903258

Sheena Gillett, PIMFA Communications & PR Director – SheenaG@pimfa.co.uk / +44 (0)7979 493225