The FCA has released some interesting papers recently and generally seems to be demonstrating a more interventionist approach – or, at least, earlier intervention.
For instance, it has decided it needs to impose more detailed regulation and governance on P2P platforms, as the market is putting consumers at risk of serious detriment. It is also considering more intervention on cash savings, as that market does not appear to be working for consumers either.
In among all this, it has released DP18/5 which considers whether introducing an overriding duty of care on firms could reduce harm by avoiding conflicts of interest and supporting longer-term cultural change.
Essentially, it is asking whether there is a gap in the existing regulatory framework which, if filled by a duty of care, would result in better consumer outcomes.
The existing framework comprises statute, rules, guidance and the Principles.
Recent years have seen the FCA take more enforcement action based on breach of Principles for the simple reason it is difficult to cover all possible circumstances with detailed rules.
The Principles give it the ability to take action where there is no obvious rule breach but it is clear a firm’s conduct has fallen below the expected standard and consumers have suffered as a result. Some of the FCA’s rules are drafted in very broad terms – for example, the “client’s best interests” rule.
It is also introducing the Senior Managers & Certification Regime, imposing more individual accountability within firms, and issues detailed guidance on the application of rules and Principles (for example, The Responsibilities of Providers and Distributors for the Fair Treatment of Customers) to provide more clarity to firms on their approach in particular areas.
Given the broad nature of the Principles and the FCA’s willingness to use them, it is questionable what additional benefit imposing a duty of care would have.
The Principles already include the following:
- Principle 2 Skill, care and diligence: A firm must conduct its business with due skill, care and diligence.
- Principle 6 Customers’ interests: A firm must pay due regard to the interests of its customers and treat them fairly.
- Principle 7 Communications with clients: A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.
- Principle 8 Conflicts of interest: A firm must manage conflicts of interest fairly, both between itself and its customers, and between a customer and another client.
- Principle 9 Customers – relationships of trust: A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer entitled to rely upon its judgment.
Surely these already impose a wide-ranging duty on regulated firms to put their clients’ interests first, and to expect to be held accountable if they do not.
Adding a further duty of care on top could create confusion for both consumers and firms as to exactly what it means. It would likely end up being down to the FCA and/or the courts to interpret that on a case-by-case basis.
The addition of such a duty would therefore be a mistake and a waste of the regulator’s resources. In fact, those resources would be much better spent producing additional guidance on how it understands its Principles apply to different firms.
It appears the FCA is considering the imposition of a new duty of care in response to feedback on its Mission 2017. It has a responsibility to consider new and alternative approaches that address such concerns but it is difficult to see from the content of DP18/5 what a new duty of care would add.
I hope the FCA can reach the same conclusion and instead concentrate on operating the existing regulatory framework more effectively.
Alan Hughes is partner at Foot Anstey LLP