The Financial Services Duty of Care Bill (the “Bill”) was introduced into the House of Lords in October 2019 and had its second reading on 9 January 2020.
The Financial Services Duty of Care Bill (the “Bill”) was introduced into the House of Lords in October 2019 and had its second reading on 9 January 2020.
In one page the bill proposes to amend the Financial Services and Markets Act 2000 (“FSMA”) so that the Financial Conduct Authority’s (“FCA’s”) statutory rule-making powers include “the power to introduce a duty of care owed by authorised persons to consumers in carrying out regulated activities”.
The “duty of care” is defined as “an obligation to exercise reasonable care and skill when providing a product or service”.
A “consumer” is defined as per the Consumer Rights Act 2015 s 2(3): “an individual acting for purposes that are wholly or mainly outside that individual's … business …”
<p">This definition is narrower than that in FSMA, which applies to “persons who use … services provided by authorised persons in carrying on regulated activities …” (see FSMA s 1G, H(2)), so includes business purposes and corporates. </p">Neither the terms of the Bill nor or commentary around it make its purpose clear.
The FCA’s view is that the power set out in the Bill is neither necessary nor beneficial for the FCA to meet its statutory objective as to “securing an appropriate degree of protection for consumers” (see FSMA s 1C(1)).
According to the FCA’s ‘Feedback Statement’ from April 2019 (FS 19/2), it has, over a number of years been:
“… told … that our regulatory framework, … may not be sufficient or applied effectively enough to prevent harm to consumers …
FS 19/2 resulted from a ‘Discussion Paper’ (DP 18/5) that the FCA issued in 2018 for “an open discussion about the potential merits of a duty of care, [and] … to give us a deeper understanding of the issues, and the way in which stakeholders perceive them …”
The material points from the FCA’s summary of the feedback were:
The FCA’s response to the feedback was:
The FCA’s clear preference was for the following “options … most likely to deliver a higher degree of consumer protection … :
By contrast, the Bill introduces a change at primary level to expand the FCA’s existing powers without obliging the FCA to deploy such power. Nor does the Bill clarify if consumers may bring private law actions against firms for alleged breach of the duty of care. As the Bill heads towards more detailed parliamentary scrutiny, practical challenges await.
This article was co-authored by Gabriel Downey - Trainee Solicitor, Charlotte Gregory - Senior Associate and Jeremy Irving - Partner and Head of Financial Services.
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