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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