By Lee Halpin

Securing an appropriate level of protection for consumers is, rightly, one of the financial services regulator’s key objectives. From bank accounts to mortgages, credit cards, loans, savings, pensions and investments, virtually every adult in the UK is a consumer of financial services.

Trust, confidence and satisfaction are, of course, all interlinked. But to experience satisfaction with a financial services product that you have purchased, you will have first had to have the initial confidence to place your trust in the product or service provider. It is in this first step, and in knowing that some form of consumer protection exists, that can often give just enough comfort to actually proceed.

So, consumer protection has a clear role to play in building the necessary confidence leading to strong levels of engagement with financial products or services. But how do consumers view the financial services industry?

The Financial Lives 2020 survey undertaken by the Financial Conduct Authority offers some insight here. This found that only 42 per cent and 35% of consumers respectively agreed to some extent with the statements “I have confidence in the UK financial services industry” and “I feel most financial firms are honest and transparent in the way they treat me”.

But it is perhaps the following single comment collected during the survey that might resonate the most with many people: “I think they’re just out to make money from you”. No interpretation is needed, the feelings are blatantly obvious

– consumer needs or outcomes are perceived to rank way behind companies seeking profits. Some work to do then from all within the financial services industry to turn such perceptions around.

But it is not right to say there aren’t important parts of the current consumer protection regime that are worthy of being commended. It is certainly true these elements are often overlooked and undervalued though.

The ability to refer complaints to an impartial and free (to the consumer) ombudsman service (which according to the most recent data upheld 37% of all consumer complaints) and the existence of a lifeboat compensation scheme

that will meets claims when a defaulting firm is unable to, are two obvious examples.

However, it is clearly preferable to have measures in place to stop things going wrong in the first place, rather than relying on how you put the wrongs right. This will be far more effective in building both confidence and trust and it is at this front-end the regulator intends to solidify consumer protection.

The method the regulator has chosen is to impose an overarching standard of conduct

– being “a firm must act to deliver good outcomes for retail customers”, also to be known as the Consumer Principle.

This high-level principle is to be supported by three prescribed expectations when it comes to firms’ conduct, namely act in good faith towards retail customers, avoid foreseeable harm and enable and support retail customers to pursue their financial objectives.

Some will no doubt question that consumer protection regulations have failed to prevent bad practice before, so what is different this time around? The main difference is there is now a clear change in focus with firms expected to look beyond just ensuring compliance with specific rules and to always place emphasis on delivering good outcomes for consumers. It will also represent a shift in the way that the regulator supervises firms.

The regulator expects firms to put themselves in their customers’ shoes. If the roles were reversed, would the firms be satisfied being treated in the way that the firm treats its customers? Not only will firms be required to routinely consider such questions but will be expected to able to demonstrate their workings, through their monitoring and testing activities.

The Consumer Principle comes into force at the end of July 2023. But in a sign the regulator expects firms to hit the ground running it has told them that by the end of October 2022 they can expect to be asked to share implementation plans and be challenged on their contents.

However, there is also no doubt there are many firms already delivering the right outcomes for consumers – good products and services at fair prices, supported by high standards of customer service and clear communications.

Attempting to gain trust, in any walk of life,

is a process rather than an instantaneous result. Only time will tell if the process is successful. In the meantime, it feels right to at least appreciate and acknowledge the concerted effort being made to put thinking about the consumer at the forefront of behaviour within financial services.

Lee Halpin is head of technical services @sipp.