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Nic Cicutti: FCA misses chance to show it’s on consumers’ side

Regulator abandons idea of introducing a duty of care for financial firms towards their customers

It may seem hard to believe from my picture in Money Marketing, but there was a time when I had a full head of hair. I was reminded of that time the other weekend, when a group of old friends came to stay. Over a convivial meal, we reminisced about heroic hairstyle failures of the past; in my case, the thin 1980s-style plaited rat tail I wore as a student nurse, tucked into the back of my uniform while at work.

Our boozy conversation that night also reminded me of another key element of life back then: that for all the occasionally ridiculous attempts to breach convention on acceptable haircuts, the clothes we wore or even the occasional herbal cigarettes we inhaled on our days off, our work itself ran along strict professional tramlines.

Central to that was our duty of care to the patients we looked after. Not only was it drummed into us that we had a legal duty of care where it was “reasonably foreseeable” that our work as nurses might cause harm to patients through our actions or omissions, but we also operated by a code of conduct set by the UK Central Council for Nursing, which explained and amplified that sense of professional duty.

What made a duty of care so vital was less the regulatory framework that policed those rules, but rather the set of cultural assumptions that lay behind it.

A duty of care meant taking into account the potential vulnerability of patients at a difficult time in their lives. It meant we were expected to anticipate the potential outcome of treatments and care decisions that were being made on behalf of patients.

Rather than focus on telling people what to do or not to do, or responding to a crisis once it had arisen, the focus was on not causing harm on the basis of a moral code of conduct.

In our school of nursing, our tutors would set us tests based on that code of conduct, drumming into us the fact that – completely separate from our practical work skills – we owed a duty of care to those we looked after.

Compare and contrast that approach with the FCA’s recently published feedback statement to the responses made to its July 2018 discussion paper on a duty of care, and you get a sense of a regulator travelling in a totally different direction when it comes to consumer protection.

Basically, what the FCA has said is that, having raised the possibility of introducing a duty of care for financial firms towards their customers nine months ago, it is abandoning the idea in favour of looking at its existing rules to make them work more effectively.

Specifically, the FCA is talking about reviewing how we apply the regulatory framework – particularly the Treating Customers Fairly principles – and how this is communicated to firms.

The FCA will consider new or revised TCF principles to “strengthen and clarify firms’ duties to consumers, including consideration of the potential merits and unintended consequences of a potential private right of action for principles breaches”.

In other words, it is telling firms to behave themselves or they might have to go to court.

The irony is that the regulator’s own document admits responses to the central question of whether a duty of care should apply to firms’ dealings with their customers mostly avoided addressing the subject.

It says: “Only a few respondents commented specifically on whether a firm should be subject to a fiduciary duty to its customers. Those in favour said a fiduciary duty would create the necessary, explicit obligation to avoid conflicts of interest altogether.

“Those who were against the idea told us that the concept of undivided loyalty to a customer is inconsistent with commercial enterprise.”

And there you have it: enshrining the concept of being loyal to a customer is not good business.

What respondents to the FCA’s July discussion paper would rather have, it seems, is a set of rules and principles which they can interpret in ways convenient to themselves – always staying on the “right” side of the regulatory framework, of course.

The fact other operators will push so hard against the framework that they and their customers fall off the edge of a cliff, costing the industry many hundreds of millions of pounds in compensation and further shredding consumer confidence, is immaterial.

What is missing from the FCA’s document is the moral code which should underpin the dealings between firms and their clients.

It is nothing new. The best advisers I know and respect already have that strong ethical sense and apply it every day in their work. It is what makes them so good at their jobs.

When I compare that approach with the current strategy used by the FCA, in which almost all its interventions are geared towards trying to shut the stable door after the horse has bolted, I know which method I prefer. But it is not fully embedded industry-wide, which makes it impossible to police effectively.

A bit like me growing my hair back, expecting the FCA to change its spots feels increasingly like a fruitless task.

Yet again, this is a missed opportunity for the regulator to show it is on the side of consumers.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Neil Liversidge 14th May 2019 at 2:43 pm

    I’m not sure this is worth stressing over. We’ve always taken it for granted that we have a duty of care, as I’m sure do the cast majority of advisers. Trying to think my way into the FCA’s head on this one, maybe they figured that a ‘duty’ being open to very wide interpretation, it’d just become a hook on which CMCs could hang concocted claims. The absence of written duty of care is far less a danger to quality advice than the situation we endure with CMCs, whereby every adviser faces a never-ending walk down the claim-concocters’ equivalent of something resembling Hogan’s Alley. I say ‘resembling’ because the difference, of course, is that in Hogan’s Alley the plywood Dillinger can’t really hurt you, whereas dishonest claim concocters can, if they get a lucky shot, kill a good adviser business stone dead.

    • Julian Stevens 14th May 2019 at 4:58 pm

      Exactly, Neil. Those of us who want to stay in business long term with satisfied clients who will recommend us to their friends and family, i.e. the vast majority of us, take our duty of care for granted. We don’t need to be told about it and the FCA’s constant search for better ways to regulate is just an ongoing distraction from its grim determination NEVER to take on board what was laid out for all to see in the original 2007 Statutory Code of Practice For Regulators (not the disgustingly bowdlerised subsequent version).

      Good regulation should be proportionate and appropriately targeted, leaving the good guys to get on with things with minimal regulatory interference whilst identifying, homing in on and taking swift action against the minority of rogues. WHY is this so far beyond the FCA’s constitutional capacity?

  2. All rather academic. You cannot instil ethical behaviour in someone through rules. However much you tell this to nurses and doctors some will fall short. Likewise financial advisers.

    Furthermore, a legal duty of care already exists and a wider de facto duty of care already exists within the rules. You could even argue that the principles already go further than that. What exactly would a duty of care (or more specifically a fiduciary duty) actually add in practice? Nothing.

    Still, a story with a catchy title on a quiet week…

    • Neil Liversidge 15th May 2019 at 7:32 am

      You’re right about ethics. You can’t teach it. You either are or you aren’t. If I ran the CII the ethics part of RO1 would be stand-alone with no course book and you’d have to take it before any other exam to qualify as an adviser. If you failed you’d not be allowed to take it to qualify for another three years. If you failed it twice I’d never qualify you.

      • Philip Castle 15th May 2019 at 1:14 pm

        Ethics is a very personal thing. When it was mooted pre RDR that membership of a professional body would be made mandatory rather than an SPS I resigned from the PFS/CII on principal as my ethics may not match those of different bodies and that includes being somewhat sharp with some people at times which can then be held as being a breach of certain ethical codes.
        Many sign ethical codes without reading them just as they do any other small print. I signed on for another 4 years in the TA and two weeks later as I do read what I signed, I asked to be released from my contract as I didn’t agree with the way things were going in 2000 and proved in 2003.You sign that dotted line and they don’t release you and you do as you’re told (within the Geneva Convention) for the next 4 years.
        FSA backed off on mandatory membership of a proffessional body and if I p*SS off too many people at the PFS/CII (hello Rory Percival), they can refuse to renew my SPS/membership and if no-one else will have me, then it actually becomes the FCA’s problem as if I have done nothing wrong other than be annoying, they may have to issue me with an SPS!
        As to ethics, I think it quite interesting that Nic is talking about them while implying that he routinely committed a herbally related criminal offence.

  3. Ethics is a county north east of Thussex. It means whatever you want it to mean. Just like Treating Customers Fairly. I rather think that a duty of care will simply add to the number of regulatory angels dancing on semantic pinheads at the expense of the adviser community. And no, Nic, financial advice is not like nursing. The regulator should have one principal aim: to get ahead of the curve and nip the rubbish in the bud.

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