Share this post:
It has been described as a ‘shake-up’, a ‘significant change’, and a ‘paradigm shift’, but Consumer Duty (or a form of it) has been emerging since the 1970s. Starting out as tentative protective frameworks, consumer-focused financial services have evolved into something far more broad and proactive, emphasising transparency, competition, and fairness.
This week, we take a look at the events over the last 50 years that ultimately led to Consumer Duty.
1970s - 1980s
Consumer Protection Laws
The first significant steps towards fairness in financial services are introduced in the form of consumer protection laws. The Consumer Credit Act in 1974 provides in-built protection for consumers within credit agreements.
Bank of England Act 1979
The secondary banking crisis prompts the creation of the Bank of England Act 1979, which aims to enhance the bank’s supervisory powers and stability.
The Financial Services Act
The Financial Services Act 1986 marks a significant regulatory shift. It establishes the Securities and Investments Board (SIB), which later evolves into the Financial Services Authority (FSA) in 1997. This act aims to improve investor protection, market integrity, and market efficiency. It also introduces the “Big Bang” reforms, deregulating financial markets and allowing for increased competition.
1980s - 1990s
Deregulation and Mis-selling Scandals
The deregulation of financial markets during the ‘Big Bang’ leads to increased complexity and the potential for mis-selling. Notable scandals like pensions mis-selling in the 1990s prompts regulatory responses.
The Financial Services Authority (FSA)
The establishment of the FSA marks a shift toward a more centralised and comprehensive regulatory body overseeing all financial services. Its role is to protect consumers, ensure market integrity, and maintain competition.
The Financial Crisis
The financial crisis of 2007-2008 exposes the shortcomings of financial regulation. The FSA is heavily criticized for failing to prevent the crisis. This leads to a global push for stricter financial regulation to prevent future meltdowns.
Treating Customers Fairly (TCF)
The TCF initiative aims to refocus financial institutions on the fair treatment of customers. It zeroes in on company culture, the way customers are interacted with, alongside products and services.
2007 - 2008
Global Financial Crisis
The financial crisis exposes significant weaknesses in the overall financial system. Governments and regulators worldwide began implementing reforms aimed at enhancing consumer protection and financial stability.
The Financial Services Authority (FSA) is disbanded, and the Financial Conduct Authority (FCA) along with Prudential Regulation Authority (PRA) are established. The FCA focuses on consumer protection and market integrity, while the PRA oversees the stability of financial institutions.
2010 - Present
Digital Banking and FinTech
The rise of digital banking and fintech introduces greater competition and innovations, directly benefiting consumers with more choice and greater convenience.
The Financial Services (Banking Reform) Act 2013 implements a range of measures to enhance financial stability, including the ring-fencing of retail banking activities from riskier investment banking activities within the same institution.
Consumer Rights Act
The Consumer Rights Act introduces various protections for consumers, including clearer contracts, remedies for faulty products and services, and enhanced consumer rights in digital purchases.
2015 - Present
Sustainable Finance and Ethical Investments
Growing awareness of environmental, social, and governance (ESG) issues leads to an increased focus on sustainable and ethical investments. Financial firms begin developing products that cater to customers seeking more responsible investment options.
2015 - Present
RegTech and Consumer Data Protection
The use of regulatory technology (RegTech) becomes central to the ability of financial institutions to comply with regulations, including those related to customer data protection (e.g., GDPR), reducing the risk of data breaches and unfair practices.
Senior Managers and Certification Regime
The Senior Managers and Certification Regime (SM&CR) is introduced, holding senior individuals in financial institutions accountable for their actions.
The European Union’s MiFID II (Markets in Financial Instruments Directive) come into effect, aimed at improving transparency, investor protection, and market efficiency.
Payment Services Directive 2 (PSD2)
PSD2 in the European Union introduces stronger customer authentication requirements and increased consumer protection in online payments, particularly for e-commerce and fintech services.
Open Banking initiatives aim to empower consumers by giving them more control over their financial data and enabling them to access a wider range of services. This enhances competition and the ability for customers to find better deals.
A New Consumer Focused Approach
In January 2021, the FCA announces a commitment to become “a more innovative, adaptive, and assertive regulator.” More protection for customers and improving public financial literacy are among the stated goals.
The FCA introduces the new Consumer Duty rules, describing them as a ‘paradigm shift’ in the way firms are now expected to approach customer support and outcomes.
Are we nearly there yet?
Having tried often (and just as often fallen short) of putting the customer first in financial services, does Consumer Duty finally signal its arrival?
There’s a lot in here to make us hopeful.
The drive to educate and support people to achieve their financial goals is the foundation of Eligible’s mission. We’re supporting financial institutions with across the UK with our unrivalled compliance tools and expertise. The values behind Consumer Duty are the ones that our platform is built on. Get in touch to find out how we can help you positively impact the every day lives of your customers.