The regulator also highlighted that while consumers need to take some responsibility, advice firms had a responsibility for the financial decisions made by “real world” customers.
It warned that while technology could bring many benefits, it could also see segments of the population let behind.
And it added that it expected firms to pay attention to possible indicators of vulnerability and have policies in place to deal with consumers who may be at greater risk of harm.
It said that in all markets it wanted to see:
- Consumers were enabled to buy the products and services they need because the environment in which they are sold is clear, fair and not misleading with a good choice architecture;
- High-quality, good value products and services that meet consumers’ needs;
- Inclusion – where everyone is able to access the financial products they need and the needs of vulnerable consumers are taken into account;
- Protection – consumers are appropriately protected from harm.
The Our Mission: Our future approach to consumers paper follows on from the regulator’s Mission statement published in October 2016 and builds a discussion about how it expects its role and regulation to evolve.
Consumer and firm responsibility
The FCA noted that it regulated for the real world and wherever possible its approach would be based on how consumers really behave rather than theory.
“Behavioural research shows us that consumers are not the economically rational ‘super consumers’ research models might assume,” it said.
It added that it expected consumers to take reasonable responsibility for their choices and decisions, but this would depend on the circumstances.
“While we have regard to the general principle that consumers should take responsibility for their choices and decisions, we know that there are very real factors that might limit their ability to do so,” it continued.
“We expect firms to frame decisions for customers (their ‘choice architecture’) based on real world consumer behaviours and not to exploit biases. We also expect them to exercise extra care where consumers may be vulnerable.
“Best practice should take on board positive uses of behavioural research to help customers towards better outcomes,” it added.
Keeping pace with a changing environment
The FCA acknowledged that technology advances were changing the way products were designed, distributed and marketed, with firms becoming increasingly sophisticated in how they segmented and analysed target markets.
However, it warned that: “Although this offers potential benefits, there are risks that some consumers struggle to engage or are otherwise left behind.
“Financial services need to be able to adapt to the changing circumstances that real life throws at people. We therefore need an approach to regulation which can take account of the differing characteristics of today’s consumers, yet also provide as much certainty as possible to market participants.
“We will have an eye to the future, and build on our understanding of concepts such as behavioural economics and big data to adapt our approach to regulation over time,” it added.
Regulating for vulnerable consumers
The FCA’s previous consumer research identified that as much as half the UK population could show signs of vulnerable financial characteristics.
As a result, the regulator is highly aware of its need to moderate the risks to these consumers.
It noted that consumers in vulnerable circumstances may be significantly less able to represent their own interests than the average consumer, and more likely to suffer harm.
It warned that it was “particularly challenging in financial services, partly because of the long-term nature of commitments and the complexity of products and information”.
The FCA continued: “We expect firms to pay attention to possible indicators of vulnerability and have policies in place to deal with consumers who may be at greater risk of harm. However, we know that potential harm does not develop into real harm for the majority of people who could be at risk.
“This requires a careful balancing act involving firms, wider stakeholders and the FCA to deliver an approach which ensures vulnerable consumers are helped and protected, but can also participate in the same markets as everyone else,” it added.
Consumer access and tackling exclusion
The FCA acknowledged that it did not have specific responsibility to ensure access for all consumers but it did have regard to how easy it was for consumers to access financial services.
“We will look particularly at cases where markets do not provide access to certain kinds of services, or to particular consumer groups,” it said.
“Financial services need to be able to adapt to the changing circumstances that real life throws at people. We therefore need an approach to regulation which can take account of the differing characteristics of today’s consumers, yet also provide as much certainty as possible to market participants.
“We will seek to develop practical strategies to tackle access problems, working with firms and stakeholders to do so. This will include looking at our own rules, but also ensuring they are being interpreted correctly,” it added.
However, it noted that if any additional obligations were to be given to firms it would first require government intervention.
Step further
FCA chief executive Andrew Bailey said: “The Mission really set out, at quite a high level, how we interpreted the objectives that the FCA has. This now takes it quite a big step further in terms of putting a lot more substance into the ‘how we think about our work in respect to protecting consumers in financial services’.”
He added: “This will drive our supervision work. It will drive our whole approach towards thinking about competition where we make policy interventions. It will also drive our broader understanding of the issues that we should be looking at so when we scan the horizon.”
Bailey also emphasised that to achieve its goals the FCA expected it would need to cooperate with many other bodies including government, financial firms, and other regulators.
The consultation is open until 5 February 2018 and responses can be made in writing or to approachtoconsumers@fca.org.uk.
