The Financial Conduct Authority (FCA) has published a feedback statement summarising the responses received to its Discussion Paper DP18/5 ‘A duty of care and potential alternatives approaches’ which is published in July 2018 and setting out next steps.
Some stakeholders have previously told the FCA that our regulatory framework, including our Principles for Businesses (the Principles), may not be sufficient or applied effectively enough to prevent harm to consumers. Some suggested to introduce a duty of care to reduce harm and ensure that firms avoid conflicts of interest, as well as supporting firms’ longer-term cultural change. However, other stakeholders suggested existing FCA rules already provide sufficient protection for consumers and impose the same requirements on firms as a duty of care would. Given the strength of these conflicting concerns, the FCA published DP18/5 to discuss about the potential merits of a duty of care.
Most respondents, across all our stakeholders, consider that consumer harm in financial services in unacceptably high, and there is a need for change to improve consumer outcomes. Others think that the SM&CR is already bringing about the change needed and that an evaluation of its impact is necessary before assessing whether a New Duty is needed.
The feedback statement summarises the opinions of different options for change include:
- A new duty which could be either as a statutory duty or as a duty expressed within the Principles
- Private right of action for breaches of the Principles
- A fiduciary duty
As a result of the feedback received, the FCA have identified options that are, alone or in combination, most likely to address gaps in consumer protection. They are:
- reviewing how we apply the regulatory framework – particularly how the Principles apply in their authorisations, supervisory and enforcement functions, and how to communicate this to firms
- new/revised Principles to strengthen and clarify firms’ duties to consumers, including consideration of whether a potential private right of action for Principles breaches is appropriate, and what any unintended consequences of this might be
The FCA states that they do not consider that this is a sufficient basis for making changes to primary legislation, which Parliament would need to make. However, they take the view that there are substantive reasons for supporting a statutory duty.
The FCA will publish a further paper in the autumn seeking detailed views on specific options for change, as part of our work on the future of regulation more generally. They have included this commitment in our Business Plan 2019/20.
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Please Note: This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions.
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