Andrew Griffith is concerned about the impact of Financial Conduct Authority’s consumer duty measuresAndrew Griffith, City of London minister, has raised concerns that flagship reforms to stop consumers being ripped off by financial services companies could damage the sector and trigger a wave of spurious lawsuits, putting him on a collision course with the UK’s chief financial regulator.
Griffith has criticised Financial Conduct Authority’s consumer duty. This is a crucial measure that requires financial institutions, such as banks and insurers, to show they have acted in the best interests of their customers and achieved “good outcomes” in areas like pricing.
Bosses in financial services companies have voiced concern about the burdens of the consumer duty and warned that it could lead to spurious lawsuits from opportunistic claims managers who argue that customers who are in trouble were not treated fairly.
According to one industry insider, Griffith was “scathing about the duty” at a recent closed door dinner with senior sector figures.
A second person who was briefed on the remarks of the minister said that he strongly criticized the FCA reform.
Colleagues say Griffith is worried that the consumer duty will impose additional regulatory burdens on financial services industry at a time when the Treasury is trying relax City rules as part a “Brexit chance”.
Ministers asked the FCA to strengthen consumer protection in their 2021 financial service act, but insiders from government said Griffith wanted to avoid a compensation culture with vexatious claims.
He said that he was keen to make sure the FCA listened and made sure the new rules regarding the consumer duty were clear and proportionate.
Although the Treasury declined to comment on Griffith’s statement, one insider claimed that Griffith was open to having “frank and honest” discussions with the sector.
The Treasury acknowledged that Griffith was concerned by the reform of consumer duty and raised the matter with the FCA.
Griffith reminded the FCA about a new “secondary” objective in the government’s financial services bill. This is for watchdogs that promote economic growth, competitiveness, and high regulatory standards.
Ministers can ask regulators for a review of their rules. However, the final decision rests with the watchdogs.
According to the Treasury, “People should have adequate levels of consumer protection. It is right that an independent regulator continues responsibility for delivering these standards.”
Griffith’s concerns were not addressed by the FCA, who declined to comment due to confidentiality in its dealings with ministers.
The consumer duty, it said, would encourage innovation and drive competition and growth in UK’s financial services industry.
Sheldon Mills from the FCA, head of consumers and competition, stated last week in speech that although some companies had made “excellent” progress in implementing the duty, “a few firms have seen it as too large and adopted an avoidance tactic to hope it will all go away.”
Mills stated, “You have to act immediately.” Mills stated that the deadline of 31 July cannot be extended. Last year, the FCA granted financial service companies an additional three months to comply the consumer duty requirements due to industry concerns regarding implementation.
After clashing with them over so-called Edinburgh reforms which were meant to make regulation easier after Brexit, the government has an already strained relationship with the UK’s top financial watchdogs.
Griffith advised the FCA’s Prudential Regulation Authority and the Bank of England that they needed to improve operational efficiency in order to deliver the “world-leading standards” that were critical to the industry and a priority for the government.