Major overhaul in UK retail financial services sector: New consumer duty to restore trust and drive innovation

Introduction and Background

The UK retail financial services sector is undergoing a major overhaul with the implementation of a new consumer duty. This reform aims to protect customers and restore trust in the industry, which has been damaged by past mis-selling scandals. The Financial Conduct Authority (FCA) will closely monitor firms to ensure compliance with the new regulations.

The Consumer Duty and its Implications

The new consumer duty requires firms to justify charges, ensure good outcomes, and provide after-sales support. Firms failing to comply may face action from the FCA. The regulator hopes that this duty will prevent mis-selling and improve trust in financial services. Firms will need to demonstrate how they are providing good outcomes to customers, shifting the burden of proof from the regulator to the firm.

Challenges and Opportunities

While the implementation of the consumer duty is a major step, there are concerns about interpretation and enforcement by the FCA. The cost of implementing the duty is estimated to be £2.4 billion for firms. Strategic revaluations may occur, leading to some companies leaving the market. However, this reform is expected to drive innovation and create new opportunities by bringing firms closer to their customers.

Conclusion

The UK retail financial services sector is undergoing a significant overhaul with the introduction of the consumer duty. The FCA will closely monitor firms to ensure compliance and protect customers from harm. While there are challenges and uncertainties surrounding the implementation of the duty, it is expected to improve trust in the industry and drive innovation.