Blog Post Written by Chamber Benefactor Giambrone & Partners LLP
The ever-rising occurrence of financial fraud, particularly aimed at susceptible customers in financial retail, has provoked the Financial Conduct Agency (FCA) to take steps to raise the customer duty expected in the financial markets over and above the existing Principle and rules.
Currently, the FCA expects organisations within the financial services market to consider and treat customers fairly but the new proposals will further expand their responsibilities. The FCA acknowledges that this will involve a sizeable cultural and behavioural change on the part of the firms in the financial retail market.
Joanna Bailey, head of the banking and financial fraud litigation department, commented “at present there is considerable variation between banks and other financial institutions in the decisions made when dealing with customers that have been subject to financial fraud. Whilst they all have impressive statements purporting to do everything possible to assist their defrauded customers, in practise, this is not necessarily the case.” Joanna further pointed out “the FCA has been compelled to take further action to support victims of fraud to ensure that all victims are treated in the same way in order to level out the outcomes.”
The FCA gives guidance on what should be considered a vulnerable customer to assist the institutions to identify such customers that could be at risk at an early stage.
· Health conditions that impair a person, such as severe or long-term illness, disability, addiction and mental health issues. All obviously can have an impact on an individual’s judgement and their ability to manage their financial situation.
· Disruptive life events such as bereavement, relationship breakdown, domestic abuse or even retirement can significantly affect a person’s ability to fully comprehend certain financial risks.
· Customers in a poor financial position have little resilience when targeted by financial fraudsters and often succumb to fraud.
· Capability is a key factor, a customer with little or no knowledge of the financial matters or how the markets operate is extremely vulnerable. Also, a person’s digital skills or literacy ability makes them susceptible.
Once having identified customers that fall within the categories outlined the FCA sets out the new consumer duties that must be adhered to.
· New consumer duty, Principle 12, is fundamental to the additional Principle and rules and enshrines Reasonableness is the guiding principle, in light of a customer’s potential for vulnerability and “a firm must act to deliver good outcomes for retail clients.”
· The FCA expectations of conduct and behaviour will be further clarified and set out by the cross-cutting rules. There are three critical behaviours required:
1. Act in good faith, firms are expected to act openly and with honesty and recognise the imbalance of knowledge and expertise between themselves and their customers.
2. Avoid causing foreseeable harm to customers. Firms should be alert to harm caused by them by any action or by the failure to act in its relationship with a customer or through its role in the distribution chain. They should be mindful of the products that involve the risk of an adverse outcome and keep abreast of emerging risks and sources of harm. However, if the customer understands and accepts the risk the firm has no liability.
3. Enable and support customers to pursue their financial objectives. Firms are expected to take responsibility for creating an environment that allows consumers to act in their own interests but must also take steps to discover how their individual customers behave and utilise this knowledge to support them and enable them to make good decisions.
The concluding element of the new consumer duty is referred to by the FCA as the “four outcomes” which encapsulate the key factors.
The “four outcomes” amounting to: a) the quality of the products and services provided by the firm, b) the fair value and cost of the services, c) the comprehensive understanding of their clients’ knowledge and capacity in the financial markets, d) the level of support extended to their clients.
Demetri Bezanties, an associate, commented “the new rules should go some way to protecting vulnerable customers of banking and financial institutions. Especially as the new rules clearly define the care that should be extended to customers with a range of vulnerabilities.” Demetri further commented “however, there is a caveat in the new rules that says that “if the customer understands and accepts the risks” the banks’ liability is void. Novice investors should be extremely careful and should be absolutely certain when acknowledging that they are aware of the potential consequences of their actions. It may be that victims of financial fraud may still find themselves in the position of requiring legal assistance to persuade financial firms to assist them to recover their lost money.”
The lawyers in the banking and financial fraud litigation department have extensive expertise in assisting clients with regulatory remedies related to financial organisations. Regardless of whether you have been rejected by your bank, they may be able to make a new approach and successfully regain your lost funds.