FCA Imposes New Duty on Firms: Justifying Charges to Customers Marks Significant Regulatory Reform

The Financial Conduct Authority (FCA) of Britain embarks on a groundbreaking reform today, compelling firms to adhere to a new duty aimed at justifying charges to customers. This granular regulatory shift is poised to enhance consumer protection and trust, with the FCA signaling a proactive approach to preventing potential mis-selling scandals.

Effective from today, firms regulated by the FCA are obligated to fulfill a heightened duty of justifying charges to customers, marking one of the most significant regulatory overhauls in decades. While the FCA has long emphasized the principle of treating customers fairly, the new mandate establishes a more specific and rigorous standard, demanding "good outcomes" for customers and the prevention of "foreseeable harm" across diverse products, services, pricing, and value propositions. Additionally, the duty encompasses a comprehensive understanding of the products being offered and the provision of post-sales support.

Nisha Arora, Director for Consumers and Competition at the FCA, highlighted the agency's readiness to take action against firms failing to comply with the new duty. Arora stated, "We have been tracking those who are not ready or may not be ready and we will therefore be poised to take action and deal with firms who are not compliant and causing harm to consumers." She emphasized that the FCA's focus will be on scrutinizing fees or charges devoid of basis, products lacking value, and instances of excessive fees.

Arora further elaborated that the new duty is designed to address potential harms preemptively, aiming to avert mis-selling scandals before they occur. "What we are asking for is not unattainable," she asserted, highlighting the fundamental goal of ensuring that consumers are provided with products and services that offer genuine value.

A pivotal aspect of this regulatory transformation is the requirement for firms to demonstrate to the FCA how they are consistently delivering positive outcomes for customers. This evidentiary step is anticipated to foster greater accountability within the financial services sector and contribute to rebuilding trust, which has historically been strained due to instances of mis-selling and consumer detriment.

Philip Deeks, Head of KPMG's Regulatory Insight Centre, underscored the fundamental shift in burden of proof resulting from this new duty. Deeks explained, "It essentially moves the burden of proof from the regulator to prove detriment, to the firm to say you must be able to evidence good customer outcomes." This change reflects a strategic move towards a more proactive regulatory approach, placing the onus on firms to substantiate their commitment to consumer well-being.

As the FCA's new duty takes effect, industry participants are expected to undergo comprehensive assessments of their fee structures, product offerings, and customer interactions. This transformative regulatory landscape seeks to usher in a new era of transparency, accountability, and consumer-centricity, redefining the relationship between financial firms and their customers.