New FCA Principle 12: Consumer Duty

Key Points

• The FCA is introducing a new Principle for Businesses, namely Principle 12: “A firm must act to deliver good outcomes for retail customers.” Firms will need to assess and evidence how they are acting to deliver good outcomes for their retail customers throughout the lifecycle of the products and services they provide to them.
• The new Principle and associated rules are far-reaching and designed to lead to a “major shift in financial services”, and the time and resources required by firms to demonstrate compliance should not be underestimated.
• Firms will be required to comply with Principle 12 with respect to all new in-scope products and services from 31 July 2023, and with respect to all in-scope products and services from 31 July 2024. Notwithstanding these dates, the FCA has stated that by the end of October 2022, firm management/boards must have agreed implementation plans.
• In general, products and services will be in-scope if they relate to a firm’s “retail market business”. Whilst this will be of most significance to firms with retail clients, it may also apply to firms who do not have retail clients, but whose products or services are “in a distribution chain” with retail clients.
• To reiterate, just because a firm does not itself have retail customer clients, it does not mean that it will not be found to have in-scope “retail market business”. In particular, a firm may have an in-scope “retail market business” if it is able to “determine or materially influence retail customer outcomes in connection with the product”. Firms must therefore consider whether they have any Principle 12 obligations even if they themselves do not have retail customer clients.
• With respect to in-scope products and services, Principle 12 will replace and impose a higher standard than Principle 6 (Customers’ interests) and Principle 7 (Communications with clients) currently require. Principles 6 and 7 will continue to apply for out-of-scope products and services.

In July 2022, the FCA issued its final rules on a consumer duty with Policy Statement 22/9,¹along with guidance in Finalised Guidance 22/5.² Under these new rules and guidance, a new Principle for Businesses—Principle 12—will come into force providing: “A firm must act to deliver good outcomes for retail customers”.

For further details regarding the new Principle 12, please read our extended background note here.

¹PS22/9, A new Consumer Duty: Feedback to CP21/36 and final rules, https://www.fca.org.uk/publication/policy/ps22-9.pdf.

² FG22/5, Final non-Handbook Guidance for firms on the Consumer Duty, https://www.fca.org.uk/publication/finalised-guidance/fg22-5.pdf.