Consumer Duty cross-cutting rules

What are the Consumer Duty cross-cutting rules?

In addition to the high-level consumer principle and the four outcomes, there are also three actionable cross-cutting rules that you should follow when advising your clients: 

• Act in good faith towards retail customers
• Avoid foreseeable harm to retail customers
• Enable and support retail customers to pursue their financial objectives.

These three cross-cutting rules expand on the standards that the Consumer Duty principle aims to achieve, while providing a handy framework for interpreting the four outcomes. You can find out more about the principle and outcomes in our Consumer Duty guide.

How to follow the Consumer Duty cross-cutting rules

By following the cross-cutting rules, it’s easier for firms to make sure they’re meeting the standard of conduct set out in the Consumer Duty. The FCA has provided some clarification of what these three rules look like in practice, and how to follow them.

Act in good faith towards retail customers

What this rule means

To act in good faith, you need to:

• Be honest, fair, and open when you deal with clients
• Be consistent.

What the rule doesn’t mean

You don’t need to stop pursuing legitimate commercial interests or seeking profits. Just make sure that, when you do, you act in good faith and keep positive outcomes for your clients in mind.

Avoid foreseeable harm towards retail customers

What this rule means

Foreseeable harm can be caused by both act and omission. This means that failing to step in to prevent harm is just as bad as doing something to actively cause it.

As well as being held accountable for causing foreseeable harm in a direct relationship with a client, firms can also be held accountable if they have a role in the distribution chain. Even if another firm in the chain contributed to the harm.

Some ways to avoid foreseeable harm include:

• Making sure that all aspects of the products you recommend, for example their design and terms, how they're marketed, and the support offered to customers are suitable for the target market and avoid causing foreseeable harm
• Making sure that no aspect of your business unfairly exploits a client's behavioural biases or vulnerabilities
• Identifying any harm that might occur if your firm or a provider you recommend, withdraws or changes a product
• Respond to trends that identify new sources of harm, such as FCA supervisory action and communications
• Taking action to reduce the risk of actual or foreseeable harm by:
  • updating product information and investment advice
  • changing product design and distribution strategies
  • removing barriers, such as extra costs for clients who want to switch products or providers
  • making it easy for clients to get in touch with you
  • giving clients time and support to find a new product if the product you've recommended is withdrawn.

If you have an ongoing relationship with a client, you need to make sure no foreseeable harm happens to them throughout the product’s lifecycle.

This includes making them aware of all costs and charges, and regularly checking that the product still meets their needs. You can do this by regularly reviewing your client's needs, and the provider's Fair Value Assessments.

What the rule doesn’t mean

You’re not responsible for preventing all harm. If you have reason to believe that a client understands and accepts the risk of a product – for example, that they can lose money if they choose an investment-based product – it won’t breach the rule.

To prove you had reason to believe that a client understands and accepts these risks, the FCA will consider how clear your product design, communications and customer services were. They’ll also consider how compliant your products are with the law in relation to how it’s being sold.

Enable and support retail customers to pursue their financial objectives

What this rule means

Firms can only draw conclusions about a client’s financial objectives based on the products they provide, and what their clients tell them. The only exception to this rule is if the firm knows that the information is out of date, inaccurate or incomplete. In this situation, they may need to contact the client to update their records.

Once a client tells you their objectives, you need to think about how to support their progress towards that goal.

The FCA suggests you do this by:

• Empowering clients to make informed decisions by recommending products that are designed clearly, with terms that are easy to understand, marketing that accurately represents the product and accessible customer support – you can see how we’ll support your clients here
• Making sure they can get the information and support they need, when they need it, to make and act upon informed decisions
• Enabling clients to enjoy the use of a product, and switch or exit without unreasonable delay or unreasonable barriers, such as extra charges
• Considering your client’s behavioural biases and the impact of vulnerability in customer interactions – our guide to identifying and supporting vulnerable clients can help
• Proactively providing advice and support to help a client continue working towards their objectives, even when they are declined for a particular product.

What the rule doesn’t mean

You don’t need to go above and beyond what clients reasonably expect from the delivery of financial advice. So, if you don’t normally offer fiduciary advice, you don’t need to do this.

What happens if you break the cross-cutting rules?

If you learn that a client has experienced foreseeable harm because of your firm’s actions or failure to act, the FCA require that you act in good faith to make things right.

This includes:

• Assessing the subject matter
• Investigating the circumstances that led to the harm taking place
• Checking whether there are reasonable grounds that another firm is solely or jointly responsible for causing the harm
• Deciding the appropriate redress or remedial action to take
• Complying quickly with whichever offer of remedial action or redress that your client accepts.