The regulator says it has seen evidence of continuing practices that cause consumer harm, including firms providing misleading or confusing information to consumers.

The watchdog says this hinders consumers ability to properly assess financial products and services. 

The proposed new Consumer Duty will have 3 key elements:

1. The Consumer Principle: 'a firm must act in the best interests of retail clients' or 'a firm must act to deliver good outcomes for retail clients'.
2. Cross-cutting rules: this would require 3 key behaviours from firms, including taking all “reasonable steps” to avoid foreseeable harm to customers, taking all reasonable steps to enable customers to pursue their financial objectives and to act in good faith.
3. Suite of Rules: a suite of rules and guidance will set more detailed expectations for firm conduct in relation to 4 specific outcomes – communications, products and services, customer service and price and value.

The FCA wants to raise standards of consumer protection amid signs many consumers do not trust financial services. It said 1 in 4 respondents to the FCA’s 2020 Financial Lives Survey said they lacked confidence in the financial services industry and only 35% of respondents agreed that firms were honest and transparent.

To improve outcomes for consumers, the FCA is proposing to expand its existing rules and principles to ensure firms provide a “higher level of consumer protection consistently” which will enable consumers to get good outcomes routinely.

The new ‘Duty’ requirements will drive a "shift" in culture and behaviour for firms, according to the FCA.

Firms which do not follow the new Consumer Duty rules - currently at proposal stage - may face regulatory action, including enforcement investigations, the FCA warned.

The aim overall is for consumers to always get products and services that are,“fit for purpose, that represent fair value and are clearly communicated and understandable.”

Sheldon Mills, executive director of consumers and competition at the FCA, said: “The package of measures we are proposing will enhance our existing rules and is designed to tackle the harms we see in financial services markets, and their causes, as well as put consumers in a stronger position to make good decisions.

“We want firms to be putting themselves in the shoes of consumers and asking, ‘would I be happy to be treated in the way I treat my customers?’. We want consumers to be able to advance their financial wellbeing and build positive futures for themselves and their families."

The consultation is open for comment until 31 July. The FCA expects to consult again on proposed rule changes by the end of 2021 and make any new rules by the end of July 2022. The FCA is also consulting on the potential benefits of attaching a private right of action to the new Duty, and what any unintended consequences of this might be.

Caroline Siarkiewicz, chief executive of the Money and Pensions Service welcomed the FCA's consultation.

She said: “Financial services providers have a critical role to play in ensuring that their customers can truly make the most of their money and pensions, by developing accessible products and services that support good financial decisions and deliver strong financial outcomes. We therefore welcome this consultation on a potential new consumer duty to create greater protections for consumers and ensure that firms deliver the right outcomes for their customers.”

• The FCA  proposals: a new Consumer Duty, which would include a new Principle.