The Most Extensive Overhaul of UK Retail Financial Services in 20 Years

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Starting Monday, the UK retail financial services will experience a significant regulatory overhaul aimed at combatting rip-offs and improving customer service quality.

The changes entail stricter regulations on value for money and fair pricing for all customers. Experts predict that older financial products not meeting these new standards may be taken off the market.

The “consumer duty” regime, introduced by the Financial Conduct Authority (FCA), sets higher and more transparent consumer protection standards. It requires financial companies, including banks, insurers, and investment firms, to prioritize delivering positive outcomes for customers while preventing foreseeable harm.

The FCA has warned companies that evidence of potential harm could lead to interventions, investigations, and possible disciplinary sanctions. The Treasury select committee will closely scrutinize banks’ compliance.

Nisha Arora, a director at the FCA, emphasized that the consumer duty raises standards across the financial sector, ensuring customers receive understandable information, fair-value products, and appropriate support when needed.

Recent FCA research revealed that less than half of UK adults have confidence in the financial services industry, with only 36% believing financial companies treat them honestly and transparently.

The cost of living crisis has led many financially stretched individuals to seek help from financial firms, such as borrowers concerned about higher mortgage rates and those seeking debt repayment relief.

The new consumer duty coincides with growing concern over “debanking,” where individuals or organizations have their bank accounts closed with little or no explanation. This has gained attention after Nigel Farage’s account with Coutts, a NatWest subsidiary, was shut down due to his political views.

Under the incoming duty, consumers can expect value for money, reasonable costs relative to benefits, fair pricing for all, and helpful and responsive customer service. The FCA will also tackle financial jargon in paperwork.

Rocio Concha from the consumer body Which? sees this as a response to customers being ripped off in financial services. The duty is expected to have broad implications, leading to clearer insurance policy terms, better savings rate alerts, and tailored support for mortgage customers in financial difficulty.

Claire Carroll, a partner at Eversheds Sutherland, notes that this is the most significant regulatory change in two decades. Companies must address older products that don’t meet the new standards, either fixing them or withdrawing them from the market.

For some larger businesses, implementing the duty and applying it to various customers poses a considerable challenge. Sectors like motor finance, product warranties, and store cards face complex adjustments, especially when the financial product is secondary to the primary sale.

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