The Financial Conduct Authority’s Consumer Duty will come into force on 31 July 2023, but firms must come up with a strategy for how they will comply with the regulation by the end of October this year.
The goal is to improve standards for how consumers in the UK are treated and protected from harm.
As described by Interactive Investor CEO Richard Wilson (pictured), the rules “potentially create a Magna Carta for consumer rights”.
One area that had generated discussion ahead of the publication of the new rules was what the future holds for exit fees.
Having once mooted an outright ban, “the FCA’s stance has softened”, Wilson said, “to focus on ‘unreasonable’ exit fees, although any form of barrier to exit is wrong, in our view”.
As with a lot of guidance and rules that eminate from the UK financial watchdog, there is a vagueness that allows the FCA to limit loopholes and prevent firms from acting within the letter of the law but not necessarily its spirit.
As such, the term ‘unreasonable’ is not fully defined and can be subject to interpretation.
The Consumer Duty outlines that firms should not charge “unreasonable exit fees, which discourage customers from leaving products or services that are not right for them, or getting better deals”.
The FCA added that excessive charges “are unlikely to be fair value, may cause foreseeable harm and are unlikely to support customers in fulfilling their financial objectives”.
“Firms should be able to demonstrate that exit charges are fair and reflective of their underlying costs for terminating a contract.”