"Some firms wait until they are ‘found out’ by the regulator instead of making their own informed evaluation of whether a course of action is best for consumers."
The regulator said it is considering changes to its regulatory approach after most respondents to its Discussion Paper - ‘A duty of care and potential alternative approaches’ - said that "levels of harm to consumers are high and there needs to be change".
In particular, the FCA will focus on new and revised Principles to strengthen and clarify firms’ duties to consumers, including considering a private right of action for Principles breaches.
Some respondents to the Paper said the Financial Ombudsman Service is an "inadequate avenue for redress" because of its damages limit, and that the additional threat of potential legal action could incentivise better standards of firm conduct.
If the FCA made the Principles breaches privately actionable, it would become able to require firms to pay redress to consumers for Principles breaches alone, under section 404 of the Financial Services and Markets Act 2000.
Additionally, respondents said revising the FCA's Principles would strengthen and clarify firms’ duties to consumers.
The FCA said: "Some told us our current approach, which they described as prescriptive and overly rules-based, encourages firms to adopt a ‘tick-box’ compliance approach – where some firms wait until they are ‘found out’ by the regulator instead of making their own informed evaluation of whether a course of action is best for consumers. These respondents want us to broaden our application of the Principles, increase our appetite for taking action where there is no other detailed rule breach, and have a clearer public dialogue about our expectations."
The FCA said it hopes the changes will help firms "feel confident and incentivised to improve their practices based on a clear understanding of our expectations, how they translate to day-to-day business, and how we will enforce them".
It added that the work will form an important part of its business plan for 2019/20 to consider the future of regulation as the UK leaves the EU.
The FCA said it will now undertake further work to examine these options and will outline next steps in the autumn, seeking detailed views on specific options for change.
Andrew Bailey, chief executive of the FCA, said: "I'm pleased that so many people shared their views with us as part of this process. Inevitably, there were a range of opinions about what would secure the right level of protection for consumers. Given their long-lasting impact, we now want to weigh-up possible changes, including whether reworking our Principles of Business is the right way forward.
"I will continue to push this forward as getting the right answer on this question is essential to the FCA delivering on its Mission."
