FCA reveals new approach to changing consumer needs

"This is good stuff; the FCA clearly recognises the importance of not just regulating financial markets effectively but also looking at how those markets serve the financial well-being of their customers."

The document sets out 4 key vision statements:

- Consumers are enabled to buy the products and services they need because the environment in which they are sold is clear, fair and not misleading with a good choice architecture.
- Products: high-quality, good value products and services that meet consumers’ changing needs.
- Inclusion: everyone is able to access the financial products they need and the needs of vulnerable consumers are taken into account.
- Protection: consumers will be appropriately protected from harm.

Discussing consumer and firm responsibility, the FCA said: "The diverse range of consumers active in UK financial markets means we need to make complex and finely balanced judgements about what it is reasonable to expect of different types of consumers and providers in any given situation. In line with our principles of good regulation, we expect consumers to take reasonable responsibility for their choices and decisions. The precise degree of reasonableness will depend on the circumstances, for example a consumer who has taken regulated advice should be able to rely on it being appropriate.

"However, we also know that some consumers’ low levels of financial capability, financial resilience or level of confidence in managing their money and finances, coupled with behavioural biases, make it difficult for regulators and firms to set a universal expectation of consumers.

"So, while we have regard to the general principle that consumers should take responsibility for their choices and decisions, we know that there are very real factors that might limit their ability to do so. We expect firms to frame decisions for customers based on real world consumer behaviours and not to exploit biases. We also expect them to exercise extra care where consumers may be vulnerable."

Tom McPhail, head of policy at Hargreaves Lansdown, commented: “This is good stuff; the FCA clearly recognises the importance of not just regulating financial markets effectively but also looking at how those markets serve the financial well-being of their customers. We are also encouraged to see the Regulator talking about ease of access to financial services and products for consumers; this is not just about helping vulnerable customers, though it is right the FCA emphasises this priority, it is about improving financial outcomes for everyone, right across the UK.”

Stephen Lowe, group communications director at Just, added: “This report adds more detail to the FCA's thinking on treating customer fairly, encouraging informed decisions and protecting vulnerable customers.

“It is reinforcing the message that economically rational ‘super consumers’ are few and far between and that firms need to take care to understand their customers as individuals, not only at the point of sale but over the course of the relationship as their circumstances change.

“You don’t help most people by piling on more information – it needs to be more personal, targeted and relevant. The FCA is right to acknowledge that many existing regulatory requirements, compounded by the behaviour of firms, are not having the desired effects.

"We welcome the report’s focus on more effective measures, the need for which has also been recognised through amendments to the Financial Guidance and Claims Bill that recognise how auto-enrolling pension savers into guidance is likely to improve outcomes. Regulation is shifting to better protect consumers while still offering flexibility and freedom.”