Longer Reads

Could there be consumer duty failure claims within your distribution chain?

The Commercial Disputes team considers the potential for consumer duty claims across financial services supply chains.

1 minute read

Published 12 October 2023

Authors

Share

Key information

  • Sectors
  • Financial services

The consumer duty came into effect on July 31 and has far-reaching implications for both new and existing financial products or services that are open to sale and renewal. It marks a significant shift in the regulatory landscape and introduces several key considerations for firms operating within this space.

What constitutes a serious breach?

The severity of a breach is contingent on multiple factors, including the number of customers affected or at risk, the financial loss incurred, customer vulnerability, and the extent to which customers were misled by the firm. Additionally, the seriousness of a breach is likely to be sector-specific, recognising that a one-size-fits-all approach may not be suitable for diverse financial products and services.

Could there be a private right of action?

The FCA possesses the authority to create a private right of action (PROA), but it has not yet established one concerning the consumer duty principle. The rationale for not creating a PROA at this stage is multifaceted. Firstly, the consumer duty represents a significant shift in the regulatory landscape, and its implementation is expected to be iterative. Both firms and consumers will gain a more comprehensive understanding of the duty over time through FCA communications, supervisory action, and complaints. Allowing the industry sufficient time to incorporate the consumer duty, without the prospect of private actions, is deemed essential for realizing the full benefits for consumers.

Could there be claims as between companies within a distribution chain, relating to the consumer duty?

The FCA clearly states that the duty extends across the distribution chain, encompassing all firms involved in the manufacture, provision, sale, and ongoing administration of financial products or services to end retail customers. This implies that each firm in the distribution chain is responsible for its own compliance with the consumer duty.

However, there are complexities when one firm’s non-compliance leads to adverse outcomes for another firm’s customers. In such cases, it is anticipated that the FCA will assess each firm’s compliance individually. A firm will not be penalized for another firm’s non-compliance unless it knew of the non-compliance and failed to notify the FCA. This signifies the FCA’s intention to address compliance on a case-by-case basis.

In conclusion…

It will take some time to see how the consumer duty will work in practice and how the FCA will choose to implement it. In the meantime, firms are advised to prepare themselves as best they can by following the FCA guidance and considering whether their contractual arrangements with other firms in their distribution claim provide them with the maximum possible protection.

The full article was first published by the FT Adviser on 11 October 2023.

For more information, please visit our Commercial Disputes lawyers page.

Related latest updates
PREV NEXT

Related content

Arrow Back to Insights

Longer Reads

Could there be consumer duty failure claims within your distribution chain?

The Commercial Disputes team considers the potential for consumer duty claims across financial services supply chains.

Published 12 October 2023

Associated sectors / services

Authors

The consumer duty came into effect on July 31 and has far-reaching implications for both new and existing financial products or services that are open to sale and renewal. It marks a significant shift in the regulatory landscape and introduces several key considerations for firms operating within this space.

What constitutes a serious breach?

The severity of a breach is contingent on multiple factors, including the number of customers affected or at risk, the financial loss incurred, customer vulnerability, and the extent to which customers were misled by the firm. Additionally, the seriousness of a breach is likely to be sector-specific, recognising that a one-size-fits-all approach may not be suitable for diverse financial products and services.

Could there be a private right of action?

The FCA possesses the authority to create a private right of action (PROA), but it has not yet established one concerning the consumer duty principle. The rationale for not creating a PROA at this stage is multifaceted. Firstly, the consumer duty represents a significant shift in the regulatory landscape, and its implementation is expected to be iterative. Both firms and consumers will gain a more comprehensive understanding of the duty over time through FCA communications, supervisory action, and complaints. Allowing the industry sufficient time to incorporate the consumer duty, without the prospect of private actions, is deemed essential for realizing the full benefits for consumers.

Could there be claims as between companies within a distribution chain, relating to the consumer duty?

The FCA clearly states that the duty extends across the distribution chain, encompassing all firms involved in the manufacture, provision, sale, and ongoing administration of financial products or services to end retail customers. This implies that each firm in the distribution chain is responsible for its own compliance with the consumer duty.

However, there are complexities when one firm’s non-compliance leads to adverse outcomes for another firm’s customers. In such cases, it is anticipated that the FCA will assess each firm’s compliance individually. A firm will not be penalized for another firm’s non-compliance unless it knew of the non-compliance and failed to notify the FCA. This signifies the FCA’s intention to address compliance on a case-by-case basis.

In conclusion…

It will take some time to see how the consumer duty will work in practice and how the FCA will choose to implement it. In the meantime, firms are advised to prepare themselves as best they can by following the FCA guidance and considering whether their contractual arrangements with other firms in their distribution claim provide them with the maximum possible protection.

The full article was first published by the FT Adviser on 11 October 2023.

For more information, please visit our Commercial Disputes lawyers page.

Associated sectors / services

Authors

Need some more information? Make an enquiry below.

    Subscribe

    Please add your details and your areas of interest below

    Specialist sectors:

    Legal services:

    Other information:

    Jurisdictions of interest to you (other than UK):

    Enjoy reading our articles? why not subscribe to notifications so you’ll never miss one?

    Subscribe to our articles

    Message us on WhatsApp (calling not available)

    Please note that Collyer Bristow provides this service during office hours for general information and enquiries only and that no legal or other professional advice will be provided over the WhatsApp platform. Please also note that if you choose to use this platform your personal data is likely to be processed outside the UK and EEA, including in the US. Appropriate legal or other professional opinion should be taken before taking or omitting to take any action in respect of any specific problem. Collyer Bristow LLP accepts no liability for any loss or damage which may arise from reliance on information provided. All information will be deleted immediately upon completion of a conversation.

    I accept Close

    Close
    Scroll up
    ExpandNeed some help?Toggle

    < Back to menu

    I have an issue and need your help

    Scroll to see our A-Z list of expertise

    Get in touch

    Get in touch using our form below.



      Business Close
      Private Wealth Close
      Hot Topics Close