Posted by Tony Katz, Michael McKee, Sophie Lessar, Puesan Lam and Rachel Tookey on 17 December 2021
Tagged to Consumer Duty, FCA, Regulation, SMCR

The FCA published a further Consultation Paper (CP21/36) on the new Consumer Duty which includes draft rules and guidance. The emphasis behind the new Consumer Duty rules remains aimed at improving and prioritising customer protection in retail financial markets. We highlight the key points from the further Consultation Paper below.

Please also see our Briefing on the FCA’s first consultation here for background.


The consultation is open until 15 February 2022 and the FCA expects to confirm any final rules by the end of July 2022. The FCA is proposing to give firms until 30 April 2023 to fully implement the Consumer Duty.

The Consumer Principle – new Principle 12

The FCA decided that the wording for the new Consumer Principle should be “A firm must act to deliver good outcomes for retail clients”. 

The FCA is proposing to disapply Principles 6 (Customers' interests) and 7 (Communications with clients) where the Consumer Principle applies.  Where the FCA regulates the provision of financial services to SMEs, which is covered on a sectoral basis, the Consumer Principle applies. Principles 6 and 7 will, for example, continue to apply for certain SMEs and wholesale business.  However, the FCA considers that existing guidance on Principles 6 and 7 remains relevant to firms in considering their obligations under the Consumer Duty. 


The Consumer Duty is to apply to all of a firm’s activities. However, the FCA has confirmed that it will align the scope of the Consumer Duty with the existing scope of the FCA’s sectoral sourcebooks (COBS, ICOBS, MCOB, BCOBS,  etc.).  The FCA recognised different sectors may face challenges in applying a single standard to retail clients. 

Application to the Consumer Across the Distribution Chain

The Consumer Duty will apply across the distribution chain – product and service origination to distribution and post-sale activities – to all firms that could impact retail customer outcomes whether or not they have a direct relationship with the customer.  

The FCA clarified that although, in general, while firms are only responsible for their own activities and do not have to oversee what other firms are doing, this will not be the case in all situations.  For example when firms outsource activities to third parties, they remain responsible for compliance.  In the context of the Consumer Duty, the FCA clarified that firms would be expected also to oversee the actions of others under the products and services outcome and price and value outcome, when they will be required to have regard to the wider distribution chain when developing a distribution strategy.

Taking its original proposal forward, the Consumer Duty is to apply to the wholesale market even if they do not have a direct relationship with the retail customer.  The Consumer Duty will apply to firms that can influence the material aspects of a retail product or service, for example its design or operation. However, the FCA has said that it would only expect firms to be liable for their own activities and that in general, firms with a direct relationship with the end user will have the greatest responsibility under the Consumer Duty.

Application to existing products and services

The FCA confirmed that the Consumer Duty does not have a retrospective effect and does not apply to past actions by firms (which will be subject to the rules that applied at the time).  However, the Consumer Duty will apply to existing products or services on a forward-looking-basis, whether or not they are still being sold to new customers.

Firms are expected to review existing products or services for compliance with all aspects of the Consumer Duty before the end of the implementation period.  If firms need to update customer terms and conditions, it will need to do so before it sells the product or service to new customers. 

The cross-cutting rules

The cross-cutting rules originally proposed by the FCA required firms to:

  • act in good faith towards retail customers
  • take ‘all reasonable steps’ to
    • avoid causing foreseeable harm to retail customers; and
    • enable retail customers to pursue their financial objectives

Agreeing with responses to its previous consultation, the FCA decided to remove the requirement for firms to take ‘all reasonable steps’ as it wants firms to focus on acting reasonably to ensure good outcomes for their customers, as opposed to focusing on process and steps they need to take.

Th FCA also clarified that the Consumer Duty would not require firms to protect customers from unforeseeable harm; all poor outcomes; or risks that the customer reasonably understood and accepted.

No private right of action

The rules do not include a private right of action at this time, which would have had wide-reaching implications. The FCA has said it will keep this under review, but accepts the existing redress framework is likely to be a more appropriate route. The consultation emphasises working closely with FOS.

Monitoring and governance

The draft rules require firms to monitor and regularly review the outcomes that their customers receive, identifying harm or risk of harm and addressing the issues. 

Although the FCA has not proposed to report on specific metrics, the FCA has included draft non-Handbook guidance which sets out the information that firms will need to collect to monitor outcomes and will need to be able to provide evidence of monitoring and resulting action, on request.  The FCA has suggested a list of the types of information that firms may want to collect, these include, among others:

  • Business persistence: analysis of customer retention records
  • Distribution of legacy products/pricing and fees and charges
  • Behavioural insights, e.g. customer interactions and drop-off rates
  • Outcome reviews
  • Testing customer experiences

SMCR – changes to COCON

The FCA has decided to amend COCON to reflect the higher standard of the Consumer Duty by adding a new rule requiring all conduct rules staff within firms to ‘act to deliver good outcomes for retail customers’ where their firms’ activities fall within scope of the Consumer Duty.  This would replace for activities within scope of the Consumer Duty, Individual Conduct Rule 4, which requires conduct rules staff to ‘pay due regard to the interests of customers and treat them fairly’.

Implementation and cost

The FCA estimates that implementation costs will be very large -  with one-off direct costs to be in the range of GBP688.6 million to GBP2.4 billion and annual direct cost to be in the range of GBP74.0 million to GBP176.2 million. The FCA has also noted that firms may suffer a loss of profits due to potential changes in product design and prices and have suggested that this loss of profits should be passed onto consumers.

The FCA expects cost of implementation will go to:

  • understanding the Consumer Duty;
  • performing gap analysis on their policies and processes;
  • making relevant adjustments through change projects – implementing changes to existing policies and processes, and reviewing product design and pricing, and establishing the necessary monitoring etc;
  • training their staff on the new requirements;
  • IT costs for any system changes – to capture, analyse and store data or new management information; IT systems changes needed to improve customer experience; and
  • monitoring and testing consumers outcomes.

Should you wish to discuss the above update, or require more detail, please get in touch with your regular DLA Piper contact.

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