The regulator raised the subject as part of its Duty of Care discussion paper, which is reviewing whether to amend any of its duty of care requirements, or overhaul it completely and introduce a New Duty or alternative approaches.
It said that Duty of care refers, broadly, to a legal obligation to take care which, when breached, will make the person at fault liable to compensate the victim for the loss they have suffered.
As part of the discussion, the FCA said that at present consumers were not able to claim when firms breached its principles and that it could not impose a consumer redress scheme for such a breach.
Question four in the paper asks: Should the FCA reconsider whether breaches of the Principles should give rise to a private right for damages in court? Or should breaching a New Duty give this right?
The FCA noted that the original rationale against allowing a claim was that “the risk of civil litigation driving the interpretation and application of the principles outweighed the benefit to consumers of being able to take action against firms, given that consumers can take action in respect of other, more specific rules”.
It added: “Nevertheless, it is open to the FCA to re-visit this issue and consider again what the potential benefit and detriment would be of making breaches of the principles actionable by private persons.”
The Law Society considered the issue in 2014 and rejected it, stating it was likely to result in defensive rather than beneficial behaviour and that it was “extremely controversial, with most financial intermediaries opposed to the change.”
However, it doing so would underline the importance of acting in the best interests of clients.
The five questions in the paper are:
Question 1
Do you believe there is a gap in the FCA’s existing regulatory framework that could be addressed by introducing a New Duty, whether through a duty of care or other change(s)?
If you believe that there is, please explain what change(s) you want to see. We are particularly interested in your views on:
- The types of harm and/or misconduct any changes would address.
- Whether a New Duty should be introduced and, if so, what form it should take.
- What additional consumer protection and benefit this would provide, above the current regime (including over and above the existing implied term in the CRA for reasonable care and skill).
- How a New Duty could and should act to mitigate or remove conflicts of interest, including the types of conflicts which exist in the provision of financial services?
- Whether a New Duty could reduce complexity and bring greater clarity, or whether it could result in an additional layer of regulation and make it more complex, and, if so, how?
- Whether other alternatives could help address any gaps, for example, extending the clients’ best interests rule to different activities.
- Whether we should introduce more detailed rules and guidance, and, if so, what specific rules and guidance are required?
- Whether the scope of any changes should differ between markets and whether it should include wholesale transactions.
Question 2
What might a New Duty for firms in financial services do to enhance positive behaviour and conduct from firms in the financial services market, and incentivise good consumer outcomes?
Question 3
How would a New Duty increase our effectiveness in preventing and tackling harm and achieving good outcomes for consumers? Do you believe that the way we regulate results in a gap that a New Duty would address?
Question 4
Should the FCA reconsider whether breaches of the Principles should give rise to a private right for damages in court? Or should breaching a New Duty give this right?
Question 5
Do you believe that a New Duty would be more effective in preventing harm and would therefore mean that redress would need to be relied on less? If so, please set out the ways in which a New Duty would improve the current regime.
