Our approach to consumers sets out how we use our powers and tools to protect consumers of financial services, in line with our consumer protection objective.
Introduction
Our approach to consumers is consistent with our Strategy for 2022-2025 which sets outcomes we seek to achieve for consumers and our expectations of firms.
Key to our work in this area is the Consumer Duty ('the Duty'), which came into force for products and services that were open for sale or renewal in July 2023 and comes into force for closed products and services in July 2024. It is central to how we deliver our work for the benefit of consumers.
We continue to develop our approach as our remit and duties change (for example, as a result of changes to primary and secondary legislation), as the environment in which we work shifts, and the challenges consumers face in their financial lives evolve.
Our approach sets out our key areas of focus, expectations of firms and the outcomes we want to see for consumers. It explains:
- our objectives
- the outcomes we want to see
- our regulation
1. Our objectives
We have a single strategic objective of ensuring that relevant markets function well. We have 3 operational objectives, which underpin our single strategic objective, and are given to us by the Financial Services and Markets Act 2000 (FSMA).
Our operational objectives, which are interconnected and contribute to protecting consumers from harm, are to:
- protect consumers – we secure an appropriate degree of protection for consumers
- protect financial markets – we protect and enhance the integrity of the UK financial system
- promote competition – we promote effective competition in the interests of consumers
We also have a secondary objective to facilitate the international competitiveness and growth of the UK economy.
In order to make markets work well for consumers, we need to ensure that we have markets in which firms are competing vigorously for consumers’ business, and where consumers are well-informed and empowered to make decisions; this in turn increases competitive pressures on firms, supporting innovation, quality and price.
We know that, in some circumstances, competition alone may not be sufficient to make markets work well and achieve the necessary outcomes for consumers. When this happens, we will intervene as necessary to protect consumers.
Different groups of consumers have different needs, which change over their lifetime and vary across financial services sectors. As a regulator, we want to ensure our work reflects the diverse needs of the UK population and that we tackle the areas of greatest harm.
A core principle in the legislation underpinning the FCA is that consumers should take responsibility for their choices and decisions. Factors, such as low levels of financial capability or being in vulnerable circumstances, may impact on their ability to take responsibility.
Firms must understand and take account of the impact such factors can have on consumer needs and decisions. Consumers can only be expected to take responsibility for their actions when they are able to trust that the range of products and services they choose from are designed to meet their needs and they have the necessary information and support to be able to access and act on their choices.
Financial products and services can be complicated and difficult to understand, and the consequences for consumers of making bad choices can impact them financially and mentally, causing harm. This may be particularly difficult for consumers with characteristics of vulnerability.
For example, consumers may have cognitive or physical challenges to overcome which make it harder for them to engage effectively with financial services.
We aim to use our regulation to address imbalances in information about financial services between firms and consumers. We will continue to work with consumers to enable them to protect themselves. As well as setting clear expectations for firms, we will take steps to improve consumers understanding of rights, responsibilities, and risks, in order to ensure that markets work well.
We will measure progress against our strategic objective to make markets work well.
2. The outcomes we want to see
There are 4 overarching outcomes we expect from financial services, which cut across all the markets and sectors we regulate. We want to see:
- Fair value: consumers receive fair prices and quality
- Suitability and treatment: consumers are sold suitable products and services and receive good treatment
- Confidence: consumers have strong confidence and levels of participation in markets, in particular through (1) minimised harm when firms fail and (2) minimised financial crime
- Access: diverse consumer needs are met through (1) high operational resilience and (2) low exclusion
3. Our regulation
We have a number of powers and tools that we can use to ensure that consumers of financial services are appropriately protected.
We use the full range of our powers and tools to enable us to fulfil our statutory objectives and deliver our strategy. The use of our powers and tools is underpinned by our regulation.
Rules and guidance
Our regulation is based on a combination of the Principles for Businesses (the Principles), other high-level rules and, where necessary, detailed rules and guidance. The rules are in the FCA Handbook, which sets out rules for authorised firms to which they must adhere. For example, the consumer credit sourcebook (CONC) sets out detailed rules for lenders.
The Principles apply to almost all firms for, generally, their regulated activities and are high-level statements of the core obligations of firms, and act as an overarching framework to govern firms’ actions. Where we see potential breaches of the Principles, we will consider what action is necessary, such as supervisory interventions or enforcement action.
Our Consumer Duty introduced a new Consumer Principle (Principle 12) that requires firms to act to deliver good outcomes for retail customers.
We have the power to make rules applying to firms, for both their regulated and unregulated activities. Our focus is primarily on regulated activities when advancing our operational objectives of consumer protection and promoting competition in the interests of consumers. The unregulated activities of a firm however may be relevant and, in some circumstances, we may take action using our broader consumer protection powers (see below), or refer matters to other bodies, such as the National Illegal MoneyLending Teams.
We also issue guidance on a range of matters, such as the operation of FSMA, our Handbook rules or for our functions.
The Consumer Duty
The Consumer Duty sets higher and clearer standards of consumer protection across financial services. Firms must act to deliver good outcomes for retail customers and cross-cutting rules provide greater clarity on our expectations. These require firms to:
- act in good faith toward retail customers
- avoid foreseeable harm to retail customers
- enable and support retail customers to pursue their financial objectives
The Duty also includes a suite of rules and guidance setting more detailed expectations for firm conduct in 4 areas that represent key elements of the firm-consumer relationship:
- the governance of products and services
- price and value
- consumer understanding
- consumer support
The Duty embeds a focus on consumer outcomes.
Firms must ensure that their customers’ interests are central to their culture and purpose. They must assess, test, understand and evidence the outcomes their customers are receiving on an ongoing basis. And firms must be proactive in acting where customers aren’t getting good outcomes. This supports healthy competition with firms competing vigorously in consumers’ interests.
Consumer vulnerability
All customers are at risk of becoming vulnerable, for example because of poor health including chronic illness or cognitive impairment, life events such as caring responsibilities or redundancy, or low resilience to cope with financial and emotional shocks. Capability issues caused by, for example, dementia can also be drivers of vulnerability.
Consumers in vulnerable circumstances may have additional or different needs. They may be less able or willing to make decisions and choices or to represent their own interests. This means they may be at greater risk of harm, including where things go wrong.
In February 2021, we introduced our Guidance for firms on the fair treatment of vulnerable customers. Under the Guidance, firms should:
- understand the needs of their target market / customer base
- ensure their staff have the right skills and capability to recognise and respond to vulnerability
- respond to customers’ needs through product and service design, flexibly customer service provision and communications
- monitor and assess whether they are meeting and responding to consumers in vulnerable circumstances and make improvements where this is not happening
The Duty builds on and strengthens our expectations for treatment of consumers in vulnerable circumstances. It requires firms to consider the needs, characteristics and objectives of their customers.
Firms must act to deliver good customer outcomes and need to understand and evidence whether those outcomes are being met for different groups of customers, including those with characteristics of vulnerability.
Where firms identify an area where they are not delivering good outcomes for a distinct group of customers, firms should have processes in place to investigate the cause and address any problems.
Access and financial inclusion
Some consumers may be excluded from financial services due to their particular characteristics, circumstances, or perceived risk (for example some consumers may struggle to access insurance or credit).
While consumers do not have an automatic right to receive products and services, lack of access can cause harm.
We do not have a specific responsibility to ensure access for all consumers. Although under our statutory competition objective and competition duty we have regard to how easy it is for consumers to access financial services and a responsibility for ensuring markets work well for consumers.
As a public sector body, we also have obligations under section 149 of the Equality Act 2010. These are to have due regard in carrying out our functions to the need to eliminate discrimination, harassment, victimisation and other conduct prohibited under that Act, advance equality of opportunity between people who share a relevant protected characteristic and those who do not and foster good relations between people who share a relevant protected characteristic and those who do not.
Given the benefits to consumers of financial services and the harm that a lack of access can create, we are concerned where markets do not provide access to certain kinds of service, or to particular groups of consumers. But we do not have all the tools to tackle access and inclusion.
This means we need to work in partnership with others, including governments in Westminster and the devolved nations, firms and consumers themselves, to improve access and inclusion.
We develop practical strategies to tackle access problems, working with other stakeholders.
For example, we use our convening powers to explore the barriers to access to affordable credit and how these can be tackled with firms, trade associations and consumer groups, as well as encouraging innovation to address questions of financial exclusion, for example through workshops and sprints.
Consumer communications
Consumers can only be expected to take responsibility where firms’ communications enable them to understand their products and services, their features and risks, and the implications of any decisions they must make.
We want firms to help their customers make informed decisions about financial products and services. As we set out in the Duty, customers must be given the information they need, presented in a way they can understand, and that equips customers to make effective, timely and properly informed decisions.
As a regulator, we also communicate with consumers to protect them and help them make better informed decisions. For example, our Scamsmart campaign informs consumers of the dangers of pension and investment scams.
Consumer redress
A strong consumer complaints and redress framework is essential to ensure consumers can have confidence that when things go wrong, they will be put right.
Generally, financial services firms carrying on regulated activities must establish, implement and maintain effective and transparent procedures for the reasonable and prompt handling of complaints.
When consumers have exhausted a firm’s complaint processes and are dissatisfied with the result, they may, if they are an eligible complainant and the matter falls within the scope of its jurisdiction, be able to refer their complaint to the Ombudsman.
We also have a number of ways of facilitating redress for consumers. These include:
- making rules and guidance on how firms should deal with particular types of complaints
- exercising statutory powers against an individual firm, such as under the Consumer Rights Act relating to unfair terms, and FSMA powers to order restitution
- using our powers to order an industry-wide consumer redress scheme, where there has been widespread or regular failure by firms
- voluntary schemes which can apply to regulated or unregulated activities of firms, and may be industry-wide or specific to an individual firm (and might include a scheme of arrangement under the Companies Act 2006)