UK lawmakers are being urged to insist all financial firms have a fiduciary duty of care to clients, a US-style move that may increase compliance costs on a sector already dealing with a slew of regulatory changes.

The Financial Services Consumer Panel, part of the Financial Services Authority, the UK regulator, has today urged members of parliament to consider the fiduciary requirement idea. If MPs approve it, the proposals could significantly alter relations between financial firms and clients, possibly giving the latter more freedom to sue for poor service.

In a briefing paper, the FSCP argues for a “fiduciary duty of care principle to be imposed on the providers of financial services”. The main elements are no conflict of interest; no profit at expense of the customer without their knowledge and consent; undivided loyalty to the customer; and a duty of confidentiality.

“This would ensure that the industry delivers what consumers already expect, it would deliver stronger consumer protection standards, encourage greater trust in firms and, support a more straightforward and effective regulatory regime which would be better for both the customer and the industry.”

In the aftermath of the financial crisis, and following a number of regulatory punishments for miscreant firms over selling products to clients considered unsuitable or excessively risky, the FSA and other regulators are looking to tighten controls. The imposition of a duty of fiduciary care is also a big issue in the US since the passing of the Dodd Frank legislation, the FSCP has noted recently. Such measures, while seeming to be innocuous at first, can become controversial if they add a further layer of costs on businesses.

“Given the clear failures by providers of financial services to treat their customers fairly we believe the new act should require the industry to provide the service that consumers expect. Customers of banks should be owed the same fiduciary duty as those seeking the advice of a lawyer or an MP, with providers prohibited from profiting from conflicts of interest at the expense of their customers,” said Adam Phllips, chairman of the FSCP.

The FSCP said the newly-established UK Financial Conduct Authority should have powers to insist that firms must “take to take their customers’ interests into account when designing products and providing advice”.

The briefing paper by the FSCP is part of an amendment to the UK Financial Services Bill.

The FSCP defines fiduciary responsibility as follows: “A fiduciary relationship is one in which a person undertakes to act on behalf of or for the benefit of another who depends on the fiduciary for information and advice. A fiduciary would be subject to a number of rules against having conflicting interests with the consumer, not profiting at the expense of the consumer, undivided loyalty to the consumer and a duty of confidentiality.”