OPINION OF THE WEEK: The UK's New Consumer Duty

Tom Burroughes Group Editor London 21 July 2023

OPINION OF THE WEEK: The UK's New Consumer Duty

Here are my brief thoughts about the new UK Consumer Duty system, which is due to take effect at the end of July.

The UK wealth management industry has less than a fortnight to go before another regulatory regime – known as Consumer Duty – takes effect (31 July). While it has rumbled in the background and not always been exactly a headline-grabbing topic, it is important for UK wealth managers, and may have lessons outside the country. 

So what is the Consumer Duty? Under this new system, firms should provide customers with products and services that meet their needs and offer fair value. Customers should receive communications which they can understand. They should get the customer support they need when they need it. On the face of it, this is like telling doctors not to kill their patients, or a taxi driver to take a client from A to B as requested. But bear with me for a few minutes. 

There are three broad legs to the Duty: A new Principle for Business: the "Consumer Principle which requires firms to "act to deliver good outcomes for retail customers"; there’s a "Cross-cutting rule" setting out three overarching behavioural expectations that apply across all areas of firm conduct, and third, there are "Four Outcomes," which are rules and guidance setting more detailed expectations for firms.

Its purpose is to ensure that wealth managers and others in the UK financial services space do what they say they do. It’s another move by the Financial Conduct Authority to raise standards. It is hard to argue against it.

These objectives can sound quite vague precisely because they seem, well, self-evidently good, but on a specific level, this is going to require firms gather a large amount of data. At a time when wealth managers have plenty of costs on their plates already, this is going to add another layer of them. Consumer Duty will require firms to review their range of products, how they communicate, and to consider changes in areas including governance and accountability, reporting, product design, distribution, servicing, and client training. There could be benefits to this.

The new requirements might affect industry consolidation and M&A. Several wealth firms have told me that the Duty is more likely to favour the integration model of M&A than the aggregator one, because there has to be more focus on ensuring that firms’ systems “talk” to each other more fluently.  

International lessons?
It’s easy for citizens in a country to bellyache about their local rules and regulations, but I was struck a few weeks ago when a senior figure in the US family offices industry said that he thought the Duty is a great idea. We chatted about how, in the US, the former Trump administration had stymied a proposed Department of Labor Fiduciary Rule and moves to shift the US wealth market to a new standard of professionalism. The UK still, to some extent, is out front of other countries with its Retail Distribution Review of 2013, which sought to remove potential for any commission bias from any advice given by financial advisors. While far from perfect, it did raise the professionalism of the industry. (For a while, it also arguably widened the “advice gap” problem when a number of financial advisors raised investment minimums to deal with higher compliance costs.)

I am unaware of Singapore, Switzerland, the US and continental Europe having anything close to the Consumer Duty. This is, to some extent, a process that is designed to foster a particular culture. The ways in which its “success” can be measured are not easy to discern, but this is not a trivial, paper-shuffling exercise, either. If it is meaningful, and improves standards, then this should benefit the UK as a financial centre and attract more business. Much depends on how rigorously it is enforced and how much resource the FCA devotes to this. 

Given some of the recent controversy about “de-banking” and complaints about the treatment of certain individuals, it is worth asking how such conduct gets treated under Consumer Duty. We shall see.

If you have views on this or other articles, let me know. Email

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