"Consumer Duty’s outcome-based approach offers an opportunity to look again at existing more prescriptive rules."
- Sarah Pritchard, Executive Director of Markets & International at the FCA
“Built by the Romans around the 2nd Century, the [London] Wall was essential for protecting the city. For centuries, it stood as a sturdy boundary, safeguarding its inhabitants from external threats. But as time went on, the city evolved. The threats to the people within changed as did their requirements…so did the Wall.” Now, let’s apply this need to evolve to the Financial Conduct Authority’s (FCA) regulatory framework.
Sarah Pritchard, Executive Director of Markets & International at the FCA, believes the “structures and boundaries we put in place over our financial systems must be maintained and respected but also adapted as our needs and circumstances change. As the risks we face evolve, so must the protection we have in place, to ensure they remain relevant and strong.”
In a recent speech, she went on to confirm that the FCA is moving to a “less prescriptive and more outcomes-focused approach […] that responds to the environment we’re living in, allows for growth and progress, but keeps consumer needs at its heart.”
She said: “In doing so, we must respond to an ever-evolving landscape and - crucially – maintain our ability to think ahead, anticipate challenges and seize opportunities. That means being bold, proactive and embracing change for the better.”
“The advice market is one area we know where reform is needed.”
“With our new regulatory framework, we have a once-in-a-generation opportunity to undertake a review of our rules, making sure they match our market and our risk appetite. This won’t be change for change’s sake. It will be a clear-sighted assessment of what works and what doesn’t,” Sarah continued.
In 2022, the FCA’s ‘Financial Lives’ survey revealed a 2.2mn decrease in financial resilience amongst adults in the UK since 2020. Yet, just 8% reportedly took financial advice in the previous year. “We will continue to work closely with both industry and consumer groups as we develop our proposals and will look to rely on the Consumer Duty as part of the new regime where it’s simplest and clearest to do so,” she said.
“But that doesn’t mean firms should sit on their hands whilst we pursue broader reform.”
Referencing the FCA’s Advice Guidance Boundary Review (AGBR), she went on to say that the regulator wants firms to “consider how they can better support their customers now […] We stand ready to help those with news, genuinely innovative ideas, to bring them to market.” Sarah believes preparing for the future through innovation and embracing the opportunities that data & technology bring, “will be key to offering more accessible, affordable and innovative services to customers. If we get this right, firms will be in a better position to harness technology to reach the underserved, with more accessible financial support products available to a greater number of people.”
“Before I move on, I wanted to stress that the aims of the AGBR will only be met if there is a vibrant and sustainable ‘capital A’ advice market too.”
“We want consumers to be able to access current full advice offerings as well as testing the need for a new simplified advice regime, and better forms of help through targeted support. The ambition that consumers have access to the help and guidance that they need, at a cost they can afford, when they need it – so that they can make informed decisions – will only be achieved by the market providing a wide variety of offerings,” she added.
Whilst the FCA endeavours to facilitate necessary change, it remains unwavering in its dedication to the underlying principles “we as regulators should uphold.” Therefore, any rule changes will complement the standards set out in the Consumer Duty.
“You will be aware by now that the Duty cuts across all retail financial services and sets a higher standard of care that firms must give to customers.”
“But importantly it does so by consciously taking an outcomes-based approach […] handling firms’ scope for flexibility and innovation in determining how best to deliver for their consumers. That includes allowing smaller firms and sole traders to take an approach that fits their size, market and clients. So fewer tick boxes, better outcomes for consumers, increased consumer trust,” Sarah explained.
Praising the industry, she said “It’s great to see how many of you have embraced the Duty and harnessed it to shift culture and improve outcomes already, for example by eradicating jargon and moving clients to less bespoke and cheaper options where that’s a better fit.” Despite recognising this response as “solid progress,” Sarah believes there’s always room for improvement; “That’s why we’ve been focusing on how firms are embedding the Duty’s requirements for consumer support and understanding, so we can identify good practice to help firms.”
“The Duty’s outcome-based approach offers an opportunity to look again at existing more prescriptive rules.”
In short, the FCA’s mindset is changing. While its focus on supporting consumers continues, the regulator is evolving its methods by taking on a more outcomes-based approach. Sarah stressed this will require collaboration; “We have a solid foundation, and with the right mindset and tools, it’s in our hands to build something remarkable together that will stand the test of time.”
“Now is the time to act, to take some considered risk, and to shape the future. Opportunities don’t wait for those who hesitate; they reward those bold enough to seize them,” she concluded.
