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The Financial Conduct Authority (FCA) has recently decided to establish new consumer duty rules and guidelines in response to multiple cases of customer mistreatment from financial service organisations. These are intended to drive and allow competition based on high standards, with consumers serving as the key component of a conforming financial services
The FCA has announced that these new consumer duty regulations have already been finalised and will take effect for all new, current, and up-for-renewal products and services on July 31, 2023. Beginning on July 31, 2024, it will also apply to closed products (i.e., off the market) that the client purchased before the new regulations went into effect. In any scenario, the electronic money institutions (EMI) and payment institutions (PI) must develop a plan by the end of October 2022 for how the consumer duty will be applied through the deadline in July 2023.
We must examine the initial considerations for the new FCA consumer duty guidelines in order to comprehend what these are. The FCA stated that it has observed evidence of activities that hurt consumers, including businesses supplying information that is presented in a misleading or complex manner, making it challenging for customers to evaluate the product or service accurately. This was notable given that Principles 6 and 7 from the FCA Handbook’s PRIN obliged firms to give consumers’ interests and information needs significant consideration.
This prompted the FCA to establish a broad, outcome-based obligation with the consumer’s interests at its centre. The FCA consumer obligation is made up of three essential parts:
As previously mentioned, Principles 6 and 7 already discussed client interests and information demands. The logical question that follows is how these concepts connect with the new FCA consumer obligation regulations.
The current Principles 6 and 7 will not apply to any new emerging customers. Instead, they work better together than separately because the new customer duty rules are outcome-based, although they have a similar concept to Principles 6 and 7. The FCA’s expectations for business behaviour are reflected in the new Principle 12, which places the client’s interests at the centre of all endeavours.
Retail customers are defined as individuals, micro-entrepreneurs, nonprofits organisations with a revenue of not more than £1 million, and a single individual operating in a position as a trustee if working for reasons unrelated to their industry, organisation, or vocation when discussing the payments and electronic money market. In other terms, retail consumers are individuals who, in the context of conventional payment/electronic money goods, might be seen as the weaker side, and to whom further legal representation must be provided.
Authorised businesses engaging in ancillary operations are subject to the new FCA consumer obligation. This implies that if services are given in conjunction with regulated activities, even those services that do not necessarily fall under the FCA’s purview will be subject to the requirement. The most frequent illustration of an ancillary business in the electronic money and payments industry is currency exchange.
Unless the cryptocurrency company is also a licensed firm (e.g., an EMI and PI), the new FCA consumer duty regulations do not apply to cryptocurrency exchange and custody activities. Depending on whether the company involved has a direct connection between the crypto exchange and payment/electronic money services, that crypto-asset operations may be seen as supplementary. This might occur if the company sells payment cards connected to payment accounts that can only be topped off through cryptocurrency transfer and are regulated by the FCA as an EMI and crypto-asset exchange operator.
The new FCA consumer duty rule will begin to apply as soon as the company initiates communication with the potential customer (regardless of whether the potential customer becomes a customer) or the actual consumer. This can be summed up as below:
All electronic money institutions (EMI) and payment institutions (PI) that significantly impact or control the outcomes for retail customers are subject to the new FCA consumer duty throughout the distribution process.
It means that the company will be compelled by the consumer duty and accountable for guaranteeing its conformance whether or not it is directly communicating with the client.
In actuality, this implies that the primary electronic money institutions (EMI) and payment institutions (PI) will be held accountable for the deeds of their agents and distributors because they had a role in how the final product was designed. This means that all of the PSD Agents, EMD Agents, and E-money Distributors must follow the consumer duty regulations outlined.
Similarly, any contracted work done for the company will be governed by the FCA consumer duty, and the company will need to think about how any of its service providers (such as customer support) may affect its adherence.
After reviewing the consumer duty, it makes sense to wonder whether the customer will always be right and the company will be responsible for any harm. It has a solution, but it’s not as obvious as it could be. Overall, the business must watch out for its clients’ best interests and work hard to deliver positive results. It does not, however, imply that customers are essentially free from duty or responsibility for their choices. Of course, the payment/electronic money institutions are in charge of reasonably foreseeable harm, but clients can still make terrible choices.
It is crucial for payment and electronic money institutions to get ready for the new consumer obligation to go into effect. The following actions should be taken as a start:
The many preliminary applicability scenarios show that the company must consider customer responsibility across the whole consumer journey. Therefore, even when a product or service is primarily designed, the new FCA consumer duty regulations must be considered. Establishing the client base and marketing objectives, it can be useful in this situation to organise the consumers and consider their preferences collectively. Pay close attention to whether the objectives outlined in our FCA consumer duty summary are realised.
Nonetheless, the new FCA consumer duty guidelines will mandate that the company consider the demands and traits of that client when responding to inquiries from a specific potential customer. An individualised approach should be used in genuine interactions with the company’s clients.
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If you require professional advice as an existing EMI client or a new individual in the field, we have the appropriate consultants for you who can help. You may view the services that we can offer through this link: https://coredo.eu.