Back in April 2017, the FCA launched its mission and committed to publishing documents explaining its approach to regulation in-depth. The ”FCA Mission: Our Future Approach to Consumers” is the first of a series of documents explaining the FCA’s approach in more detail.
The FCA mission explained how/why the FCA prioritises, protects and intervenes in financial markets. Its publication was a milestone in the FCA’s efforts to be more transparent about its role and accountability while discharging its mandate. The regulators ”Approach to Customers” is the first of a series of documents. This particular publication explains the FCA’s approach to regulating for customers.
Background FCA Mission:
it’s important to note that the FCA exists to serve the public’s interest as far as financial services are concerned. The regulator does this through regulation. The UK parliament has given the FCA one strategic objective which is; ensuring financial markets function well. The FCA also has three operational objectives. The first one is to secure the relevant protection to consumers of financial services. The FCA is also charged with the responsibility of protecting as well as enhancing integrity in the UK financial system. Lastly, the FCA must ensure fair competition (consumer interests must be protected).
The FCA’s wish list in regards to consumers:
The FCA focuses on seeing financial markets where;
1. There are adequate high-quality financial products and services which meet the needs of consumers.
2. Consumers can buy financial products and services which are sold in a manner that is clear and fair (not misleading).
3. The needs of vulnerable consumers are considered. How was the approach was developed?
Before looking at the core ideas that informed the FCA’s approach to consumers, it’s important to understand how the approach was developed. The FCA’s approach to consumers considered the diverse characteristics of consumers and the external environment where firms and consumers operate. The approach explored vast research as well as the real experiences of 12,865 persons in the regulator’s Financial Lives Survey published on 18th October 2017. Core ideasThe FCA’s approach to consumers is based on the following core ideas;
1. Firm/consumer responsibility – According to the FCA, firms must treat their customers fairly. Financial services firms must provide products and services that customers need. Those products and services must also be marketed and sold in a manner that allows customers to make informed decisions. The FCA acknowledges the fact that some customers may not be able to make the best decisions when choosing products/services. Firms must exercise extreme caution where customers stand to be vulnerable. They should not exploit vulnerable customers in any way. However, the FCA also expects customers to assume reasonable responsibility for decisions made when buying financial products/services.
2. Regulation for vulnerable consumers – The FCA sees a need to have special regulation for vulnerable consumers i.e., consumers who are seriously ill or in financial distress. The FCA expects firms to pay special attention to the signs/indicators of customer vulnerability and have policies to deal with such customers. Firms must ensure vulnerable consumers are protected and helped.
3. Keeping up with changing environments – The FCA acknowledges that changes like new technologies have an impact on how firms and consumers make decisions. As a result, the FCA makes regulation while factoring in consumer needs based on changing circumstances while also ensuring adequate certainty to firms. The regulator uses Data Sciences and behavioural economics to ensure regulation approaches are great today and in the future.
4. Access and Inclusion – The FCA acknowledges the fact that some consumers are unintentionally excluded from enjoying some financial products/services because of their circumstances or specific characteristics. As a result, the regulator seeks to develop strategies for tackling access and inclusion problems. The FCA is working with financial services firms among other industry stakeholders to ensure there is fair access and inclusion. The regulator is also looking at its own rules currently and making efforts to ensure industry players interpret its rules correctly.
5. Delivering better outcomes for consumers – The FCA has a variety of tools it deploys to diagnose as well as remedy all types of ”harm” to guarantee better outcomes for all kinds of consumers. The regulator uses all types of interventions from harder to more prescriptive interventions such as issuing formal communication to imposing new rules. The FCA also uses its convening powers to bring all stakeholders together if need be when there is need to solve issues without formal regulatory intervention. According to Andrew Bailey, the C.E.O. of the FCA, the regulator’s mission is to act in situations where the greatest public value is added.
The FCA’s approach to consumers focuses on how the regulator can offer better consumer outcomes via interventions. The approach also highlights the regulator’s stance in tackling consumer problems. According to Bailey, the regulator will work with the Government and industry stakeholders among other players to address complex consumer issues such as financial exclusion and vulnerability. This is precisely why the regulator has opened consultation on its approach document. The consultation closes on 5th February 2018 after which a final approach will be published.