Financial disputes regulator plays down impact of new UK consumer protection

The chief financial ombudsman has sought to damp industry concerns that new flagship consumer protection reforms could disproportionately harm the finance sector, saying she has “no interest” in pursuing spurious compensation claims.

The consumer duty, a measure by the Financial Conduct Authority, comes into force from July 31 and requires around 60,000 banks, insurers, asset managers and other companies to prove that they have acted fairly and delivered “good outcomes” for customers.

“My concern is just to make sure that consumers are being treated on a fair and reasonable basis,” Abby Thomas, chief executive of the Financial Ombudsman Service (FOS), an official body that settles disputes between companies and their customers, told the Financial Times.

“If we felt someone was trying to exploit some form of loophole, then we would always speak to the FCA first, to understand their perspective on it, and if necessary the firms and professional representatives.”

Several financial services industry leaders said they were concerned about the approach of the FOS to the reforms, warning that these could cause a wave of penalties for unintentional, minor errors. The FOS has the power to award compensation for consumer protection breaches.

The FT has previously reported that City minister Andrew Griffith has privately expressed sympathy with those concerned in the industry, and is keen to avoid the development of a vexatious “compensation culture” at a time when Britain is touting the competitiveness of its financial services sector.

“We have no interest in taking a lot of spurious cases,” Thomas said.

The FCA, the UK’s chief financial regulator, drew up the reforms to fulfil a direction from parliament in 2021 and promised that the package would herald a “major shift” in the behaviour of financial services providers.

The consumer duty aims to end rip-off charges, provide timely and clear information and ensure that products and services are the right fit for the customers who buy them.

Since the rules were announced, the FCA has publicly berated businesses for shortcomings in their implementation plans. In January, it warned that some insurers and asset managers would “struggle” to meet the deadline and last month highlighted continued failings in a sample of 14 companies whose proposals it examined.

The reforms were delayed for three months to give companies more time to prepare.

Thomas said that her office, which fields around 165,000 complaints a year on issues ranging from mis-selling to fraud and overcharging, did not see the requirements as setting a “significantly different standard . . . from that which we’ve always worked to”. This was to ensure consumers are being treated “on a fair and reasonable basis”.

“What we’ve been doing internally is saying, ‘well what cases do we receive today?’” she said. “We’ve taken that assessment and said, ‘look, in a new consumer duty world, do we think that our handling would have been very different?’ And the answer has been ‘no’, so far.”

Thomas added that the 2,700-strong FOS was “not anticipating” that its treatment of cases or rate of complaints upheld, currently around 35 per cent, would change because of the incoming rules.

But, she added, FOS staff would record whether a consumer duty consideration was applied in cases so the impact could be analysed.

Thomas is also not expecting a surge of cases, beyond a possible temporary spike when complaints rise a little after the regulation is introduced because consumers become more aware of their rights.

“I think where the real benefit of the consumer duty kicks in is that it encourages firms to think more deeply earlier on about their treatment of customers,” Thomas said. “I hope it reduces our complaints and I don’t see significant areas where I think complaints will go up.”

Any increase in claims, temporary or otherwise, will not be apparent for several months because the rules only apply to products and services sold after July 31, and customers must complain to the companies involved before approaching the FOS.

The FCA has also argued that the rules will ultimately lead to lower levels of complaints and fines, meaning lower costs for companies, some of which have complained that the rules are overly burdensome.