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The FCA New Consumer Duty: Principle 12 Is Here – Dodd-Frank, Consumer Protection Act

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The Consumer Duty sets the standard of care that firms
should provide to customers in retail financial

What is the new Consumer Duty?

Following the May 2021 consultation and a
second consultation in December 20212, the FCA
published PS22/93  on 27 July
2022, as Guidance given by the FCA under section 139A of the
Financial Services and Markets Act 2000 (FSMA). FCA policy
statement PS22/9 together with Final non-Handbook Guidance for
firms on the Consumer Duty in FG22/5 sets out final Rules and
Guidance in respect of the new Consumer Duty, which places an
increased emphasis on firms putting the needs of their customers
first, by creating a requirement that they do so. Firms will also
need to remember to take into account the FCA’s guidance on the
fair treatment of vulnerable customers (FG21/1) when considering
how to comply with the new Consumer Duty.

The new Rules and Guidance come into force on a phased

On 31 July 2023, the Consumer Duty will
apply to all new products and services, and all existing products
and services and remain on sale or open for renewal. It will then
come fully into force at the on 31 July
 and will apply to all closed products and

There is now a new Principle 12 
which sets out that “A firm must act to deliver good
outcomes for retail customers
.” Where the new
Principle 12 applies, Principles 6 and 7 do not apply. Principle 12
is considered to impose a higher and more exacting standard of
conduct than Principles 6 and 7. Failure to comply with Principle
12 may lead to FCA enforcement action resulting in fines and
associated damage to reputation. At the current time, however,
there is no private right of action in respect of the new consumer

Principle 12 and the Cross Cutting Rules

The Consumer Duty is structured to consist of 3 core

Principle 12 reflects the overarching, high standard of
behaviour required of firms by the FCA. The Cross-Cutting Rules
then further develop the Authority’s expectations for firms in
delivering good consumer outcomes, by applying the following

  • Firms must act in good faith towards retail customers

  • Firms must avoid foreseeable harm to retail customers

  • Firms must enable and support retail customers to pursue their
    financial objectives

Principle 12 and the Cross-Cutting Rules are then supported by
the Four Outcomes which consist of Rules and Guidance setting more
detailed expectations for firm conduct in four particular

  • Governance of products and services

Who does the new Consumer Duty apply to?

The new Consumer Duty applies to all firms that “have a
material influence over, or determine, retail customer
outcomes” – and across the whole distribution chain, from
product and service origination through to distribution and
post-sale activities. It applies to the regulated activities and
ancillary activities of all firms authorised under FSMA, the
Payment Services Regulations 2017 and E-money Regulations 2011, in
relation to products and services
affecting prospective and actual 
retail customers. Who is to be treated as a retail customer for
these purposes will depend on the specific regulated activity in
question. Although the Consumer Duty will not apply in relation to
customers who choose to be treated as professional clients pursuant
to the COBS rules in relation to investments, it does apply to the
process by which a firm determines the status of a customer. If,
for example, a firm were to encourage a customer to pursue a
classification as a “professional client” in order to
avoid providing protection to that customer under the Consumer
Duty, that would accordingly be a breach of the duty.

Where Principle 12 applies, Principles 6 and 7 do not apply, as
Principle 12 imposes a higher standard of conduct on firms.
However, firms should be aware that conduct that would have
breached Principles 6 and/or 7 would likely constitute a breach of
Principle 12. Where Principle 12 does not apply, Principles 6 and 7
will continue to apply to transactions that fall outside the scope
of the duty. For example, in circumstances where services or
products are exempt or unregulated, they will not be within the
scope of Principle 12 and Principles 6 and 7 will continue to

How will the Consumer Duty provide better Consumer

The Consumer Duty will provide heightened protection to
consumers, given the potential for them to be exploited by firms
and because they are do not always possess the knowledge and
experience to make good decisions for themselves. When firms design
products they often do not ensure that they present fair value to
the consumer and they do not prioritise the needs of their
customers adequately, sometimes prioritising profit ahead of
favourable outcomes for their customers. The new duty therefore
heralds an increased layer of protection to consumers which will
signal amplified scrutiny of firm behaviour. It will also seek to
prevent and minimise the likelihood of customers being exploited by
firms, sometimes for reasons that they themselves would not even
identify as weaknesses, such as their own inertia and loyalty to
their existing provider for brand purposes. The onus therefore now,
more than ever, is on firms to act in good faith towards retail
customers and avoid foreseeable harm to those individuals.

Importantly, the Consumer Duty also supports existing legal
requirements, such as those in the Equality Act 2010. Firms are
required to take appropriate action to remedy the situation when
they identify any group of retail customers that is experiencing
different, less favourable outcomes compared to other

What challenges may firms face in implementing the new Consumer

Firms may face a number of challenging issues as part of their
implementation of the new Consumer Duty. These may for example
include: identification of customers in scope and whether that
includes small and medium enterprises (SMEs); products in scope and
whether the target market includes retail customers; reviewing
closed books for fair value; relationships with other firms in the
distribution chain – obtaining necessary information and
identifying where responsibility lies; and whether review of
existing products will in fact lead to retrospective application of
the new duty.

More generally concerning the lifecycle of the customer
relationship, firms will need to ask themselves whether they are
applying the same energies, resources and standards to delivering
good outcomes for their customers as they are for generating
revenue for the firm in those areas of the business. This is a
critical examination in testing systems and motivations and paving
the way for fairer and more favourable customer outcomes. Once
customers have purchased a product, firms will need to question
whether the ongoing information and support is as clear and
unequivocal as that used to sell the product to those individuals
in the first place.

It will also be crucial for firms to regularly assess and
monitor customer outcomes and to then take corresponding action to
address risks and harms arising, whilst putting customer needs at
the heart of their culture and business.

Governance and accountability

The Consumer Duty requires firms to ensure that acting to
deliver good outcomes is reflected in their strategies, governance,
leadership and people policies, including incentives at all levels.
Staff incentives, performance management frameworks and
remuneration structures must be designed in a way that is
consistent with ensuring good outcomes for customers.

A firm’s board or equivalent governing body is responsible
for ensuring that the Consumer Duty is properly embedded within
their firm. Firms are expected to have a “Consumer Duty
Champion”, who should ideally be an independent non-executive
director, on the board or equivalent governing body. That person
should work with the Chair and CEO to make sure the Consumer Duty
is raised in all relevant discussions. A report must be prepared
for the board to review and approve, at least annually, assessing
whether the firm is delivering good outcomes for its customers
which are consistent with the Consumer Duty. The FCA will expect to
be provided with the report and supporting management information
on request.

To support the above, each senior manager under the Senior
Managers and Certification Regime (SMCR) at a firm should be clear
about what they are responsible and accountable for, and how they
are ensuring that the business of the firm complies with the
requirements of the Consumer Duty on an ongoing basis.

Lastly, the FCA is introducing a new individual conduct rule
– individual conduct rule 6 which will require all conduct
rules staff to “act to deliver good outcomes for retail
customers” where the activities of the firm fall within the
scope of the Consumer Duty.

Whilst some firms subject to the Consumer Duty are not subject
to the SMCR, these firms will still need to ensure that their staff
are properly equipped to enable the firm to act to deliver good

Interaction between the new Consumer Duty and the new financial
promotion rules for high risk investments including

The Consumer Duty will apply to financial promotions. The FCA
clarified in its consultation paper4 and subsequent
policy statement5 its expectations concerning the
application of the Consumer Duty to financial promotions concerning
high risk investments including cryptoassets. The FCA considers
that the strengthened financial promotion rules set a minimum
baseline for firms that promote high risk investments and give
clear guidance on what is expected, with the aim of bringing up the
overall standard of high risk investment promotions. But they also
support the approach of the Consumer Duty, by encouraging firms to
consider for themselves whether they should go beyond this minimum
standard, considering the needs of their customers, to deliver good
outcomes. Firms will need to consider how to comply with these
requirements not only in relation to their own financial
promotions, but also when approving financial promotions for
unauthorised firms.

Timetable for implementation

This was the subject of much debate in response to the
consultation – balancing the need for enhanced consumer
protections as soon as possible in particular due to cost of living
pressures against the need for industry to have enough time to
implement the Consumer Duty fully and effectively which will
involve extensive and complex work for many firms.

The final timetable for implementation is as follows:

End of October 2022 Firms’ boards (or equivalent management body) should
have agreed their implementation plans and be able to evidence they
have scrutinised and challenged the plans to ensure they are
deliverable and robust to meet the new standards.
End of April 2023 Manufacturers should aim to complete all the reviews necessary
to meet the four outcome rules for their existing open products and
services and have shared with distributors to enable distributors
to meet their obligations under the Consumer Duty.
End of July 2023 Manufacturers should have identified where changes need to
be made to their existing open products and services to meet the
Duty and have implemented these remedies.
End of July 2023 The Consumer Duty will apply to all new products and
services, and all existing products and services that remain on
sale or open for renewal.
End of July 2024 The Consumer Duty will come fully into force, and apply to
all closed products and services.

Concluding thoughts

The Consumer Duty will ensure a process of continuous
self-examination and learning for firms. Customer needs are ever
evolving in the constantly developing financial services
environment, and as more and more people face financial hardship
with the cost of living crisis, the FCA is placing ever greater
scrutiny on consumer protection, now more than ever.


1 CP21/13: A new Consumer Duty

2 A new Consumer Duty: Feedback to CP21/13 and
further consultation (

3 PS22/9: A new Consumer Duty | FCA.

4 CP22/2: Strengthening our financial promotion rules
for high risk investments, including cryptoassets

5 PS22/10: Strengthening our financial promotion
rules for high risk investments and firms approving financial
promotions (

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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