Skip to main content


Retail Financial Services: Five Key Themes on the FCA’s Agenda

The rising cost of living is a top priority for the FCA and brings the FCA’s existing focus on consumer protection further into the spotlight. The FCA has been taking an increasingly active role in protecting consumers and doubling down on its efforts to ensure firms provide good outcomes for vulnerable customers. The FCA’s new Consumer Duty, amongst other initiatives, further demonstrates the FCA’s shift in recent years to a more outcome-focused, assertive and interventionist regulator.

This article provides an update on the latest developments in retail financial services, highlighting five key items on the FCA’s agenda for consumers. These represent critical risk areas which firms should be focused on as the cost of living crisis and the economic downturn continue.

1.     The Consumer Duty

In July 2022, the FCA published the final rules and accompanying non-Handbook guidance for its new Consumer Duty.1

The new Consumer Duty aims to tackle deteriorating public confidence in retail financial services by setting higher standards of consumer protection and requiring firms to focus on good customer outcomes. To deliver good outcomes for retail customers, firms must consider the needs, characteristics and objectives of customers and take an evidence-based approach on whether those outcomes are being met. The new rules centre on the following four customer outcomes that the FCA considers represent important elements of the firm-consumer relationship:

  • Providing products and services that meet consumers’ needs.
  • Offering fair value.
  • Communicating with consumers in a way they understand.
  • Providing consumers with the support they need and when they need it.

The FCA expects boards and senior managers to be accountable for delivering good consumer outcomes and to embed the Consumer Duty in their firm’s culture. The board must oversee the firm’s implementation of, and ensure the firm’s compliance with, the Consumer Duty, and the new requirements should be reflected in the firms’ strategies, governance, leadership and people policies. The FCA does not see this merely as a “tick-box” exercise but rather that the Consumer Duty and focus on good customer outcomes should permeate a firm’s culture.

Firms will be required to apply the Consumer Duty to:

  • new and existing products or services that are open to sale or renewal by 31 July 2023; and
  • closed products or services that are not being sold or renewed by 31 July 2024.

Nonetheless, the FCA expects firms to demonstrate progress in the implementation period and has urged firms to “step up now to support consumers”.

2.     Vulnerable Customers

In recent years, and most notably during the coronavirus pandemic, the FCA has been particularly focused on vulnerable customers. This focus will undoubtedly continue given the ongoing cost of living crisis.

In February 2021, the FCA published guidance for firms on the fair treatment of vulnerable customers (see our blog here). The FCA applies a broad test for what constitutes a vulnerable customer and looks at four key drivers of vulnerability:

  • Health (broadly defined and including physical and mental health issues).
  • Life events (such as bereavement, loss of employment and relationship breakdown).
  • Resilience (a customer’s ability to withstand financial or emotional shock, with a lack of resilience potentially caused by inconsistent income, low savings or high indebtedness).
  • Capability (including the consumer’s level of financial knowledge and confidence in managing money).

In May 2022 (before the cost of living crisis worsened over the second half of 2022), the FCA calculated that 60% of all UK adults were finding it a heavy burden or somewhat of a burden to keep up with their bills, up from 50% in 2020. In May 2022, the FCA concluded that 47% of UK adults showed one or more characteristics of vulnerability. The increasing number of vulnerable customers means that more consumers are exposed to a risk of financial harm. In this context, the FCA reviewed firms’ progress in implementing the FCA’s vulnerable customer guidance. In June 2022, the FCA raised the following concern in relation to retail banks: “Almost half of the retail banks we spoke to were unable to evidence that they have comprehensive strategies [to deal with vulnerable customers] that cut across all business units or that ensure consistently fair outcomes across the firm.” The FCA suggested that firms put in business-wide committees dedicated to vulnerable customers.

Whether firms’ actions have impacted vulnerable customers also has a significant impact in FCA enforcement cases. This is because, when determining financial penalties for firms that have breached the regulatory regime, the FCA will take into account the impact that the breach had on vulnerable customers (whether or not it was intentional).2 For example, in 2022 the FCA considered the impact on vulnerable customers in assessing the seriousness of the following firms’ breaches and thus the scale of the financial penalties that were imposed on them:

  • TSB Bank plc: The FCA and PRA fined TSB a total of £48.65m for operational risk management and governance failings in relation to the bank’s IT upgrade programme. The technical failures resulted in customers being unable to access banking services, with 5.2 million customers affected. TSB paid £32.7m in redress to customers. The FCA identified that issues with this IT migration programme had the effect of making some vulnerable customers particularly stressed and anxious.
  • Pembrokeshire Mortgage Centre Limited: The FCA fined Pembrokeshire £2.4m for unsuitable advice to consumers to transfer out of the British Steel Pension Scheme and other defined benefit pension schemes. The FCA was critical that the advice provided was not sufficiently tailored to customers’ personal circumstances and in particular to vulnerable customers for whom the defined benefit scheme was their most valuable, or only, asset.
  • TFS Loans Ltd (in administration): The FCA fined TFS Loans (a consumer credit firm) £811,900 for deficient affordability checks on guarantors. Amongst the FCA’s findings was that TFS did not follow the FCA’s guidance for firms in the unsecured lending sector to reduce or waive fees for vulnerable customers in arrears in order to avoid causing them undue hardship. In determining the level of the penalty, the FCA considered that the breach caused significant loss on particularly vulnerable people, many of whom may have been in financial distress and unable to obtain credit through other means.

These cases show that the regulator is taking an increasingly robust approach to firms that are not sufficiently focused on vulnerable customers. The FCA warns “where firms fail to meet their obligations to treat customers fairly, we will take further action”.

3.     Protecting Borrowers

The FCA is urging retail banks, consumer credit firms, insurance providers, mortgage providers and Buy Now Pay Later (BNPL) providers (amongst others) to do more to protect borrowers during the current economic downturn.

During the coronavirus pandemic, the FCA introduced the Tailored Support Guidance (TSG) for firms dealing with customers facing payment difficulties resulting from the pandemic in respect of mortgages, consumer credit and overdrafts. This was followed by the launch of the FCA’s Borrowers in Financial Difficulty (BiFD) project in Spring 2021 (by which the FCA sought to ensure that firms were supporting borrowers in financial difficulty).

Given the cost of living crisis, the FCA expects to see higher demand for credit, even despite the current higher interest rates. Those higher interest rates will mean that borrowing will become less affordable for many and not viable for some. In a Dear CEO Letter in June 2022, the FCA wrote to over 3,500 lenders to remind them of the standards the FCA expects them to meet when supporting borrowers, including those in financial difficulty in the context of the rising cost of living. Firms must also ensure they treat retail borrowers fairly, whether they are existing or new customers. In October 2022, the FCA published another Dear CEO Letter addressed to 700 firms providing high-cost lending products. The letter sets out the FCA’s expectations on those firms to consider the likely impact of the cost of living crisis on consumers and to take steps to support their customers and mitigate harm (for example by signposting them to debt advice charities).

In November 2022, the FCA published a report on its BiFD project that sets out its expectations on how lenders should protect borrowers, focusing on the following four areas:

  • Engaging with customers – Firms should provide customers with an appropriate level of care and support. What is appropriate should be considered in light of the customer’s characteristics of vulnerability. Firms should encourage customers to engage with them when payment issues start to arise. Once a customer has missed payments, firms should proactively contact them to offer support.
  • Effectiveness of conversations with customers – Firms’ discussions with borrowers in financial difficulty should lead to fair, appropriate and sustainable forbearance arrangements. Firms should communicate a number of forbearance options, including reducing interest rates and structural changes to customers’ arrangements (for example, term extensions and periods where the customer only pays interest). These arrangements should be tailored to the customer and take account of the fact that a customer’s circumstances may change. Firms should provide ongoing training for staff to ensure that they have effective conversations with customers.
  • Helping customers to consider and access money guidance and debt advice – Firms should direct customers who are struggling with debt to free debt advice and money guidance services (such as through the Government’s MoneyHelper service). Firms should try to provide support over the phone as opposed to just in writing or online. 
  • Fair fees and charges – Firms should ensure that fees and charges levied on borrowers in financial difficulty are fair and firms should not do more than cover their costs.

Following the BiFD project, the FCA asked 32 UK lenders to make material changes to their lending processes. One firm has exited the market and seven firms are collectively providing around £12m in remediation to around 60,000 customers who were treated unfairly during the pandemic.

Examples of poor practice identified by the FCA include:

  • Failures to clearly explain to customers the impact of missed payments.
  • Poor customer service where customers contacted firms about their missed payments. The FCA highlighted an example of a customer who was transferred to different call handlers eight times over 1.5 hours and was still left with their question unanswered.
  • The use of lengthy scripts including information irrelevant to the customer, leading to confusion where helpful advice is lost within the script.
  • A lack of tailored advice, where no further questions are asked to understand the customer’s circumstances.

Over the coming months, the FCA has said that it will continue to monitor firms’ treatment of borrowers in financial difficulty. In some cases, the FCA will consider asking firms to stop lending where they are delivering poor customer outcomes. We can expect a consultation on the future of the TSG, possibly including proposals to change the FCA Handbook.          

4.     Fraud

With growing numbers of vulnerable customers, the risk of financial fraud and scams is on the rise. In its Annual Public Meeting in October 2022, the FCA warned that the risk of scams and financial crime is “greater than ever” as criminals take advantage of the cost of living crisis. For example, FCA research found that 25% of consumers would consider withdrawing money from their pension earlier than planned to cover the rising cost of living. In this context, scammers are targeting individuals to take money out of their pensions and reinvest that money into fraudulent schemes.

Financial services firms play an important role in the fight against financial crime and the FCA expects them to establish and maintain adequate policies and procedures to counter the risk that the firm might be used to further financial crime. When enforcing against firms that fail to do so, the FCA will consider the impact of the breach on vulnerable people. For example, in December 2022, Barclays was fined £783,800 for failing in its oversight of its customer, Premier FX (a payment services firm that failed to segregate and safeguard customers’ funds). The FCA also noted, as a factor increasing the seriousness of the breach, the effect on vulnerable people, such as retirees who were relying on this service.

The FCA’s “ScamSmart” campaign provides advice to consumers when making investment decisions and a Warning List of unauthorised firms to help consumers identify scams. The FCA has warned that regulated firms who let down their guard by inadvertently assisting firms on the Warning List may face action from the FCA. In a Dear CEO Letter to life insurers published in December 2022, the FCA states it expects life insurers to ensure anti-scam communications are used to protect customers, with firms implementing a clear process to identify customers vulnerable to scams at an early stage and have well-trained staff to provide customer support. In addition, the FCA wants the measures tackling scam adverts in the draft Online Safety Bill to be enacted as soon as possible. These measures will require firms with online platforms to take legal responsibility to stop criminals from paying for adverts on their sites to defraud people. The FCA is already scanning 100,000 websites every day to identify scams, with hundreds of websites having been taken down as a result.

In this climate, financial services firms must strengthen their systems and controls against the risk of becoming associated with fraud or scams and update them to reflect new risks arising out of the cost of living crisis.

5.     Financial Promotions

The FCA’s financial promotions regime (which prohibits non-authorised persons from advertising financial products and services) is another key means by which the FCA protects consumers. Between July and September 2022, the FCA amended or withdrew over 4,000 financial promotions (the highest number since the FCA started publishing the data).

In addition to its usual enforcement of unlawful financial promotions, the FCA has been amending and clarifying the scope of its financial promotions regime in light of the current cost of living crisis. In particular, the FCA is tightening its rules around the promotion of high-risk investments and BNPL products.

  • High-risk investments – In August 2022, the FCA published a policy statement which sets out the new Handbook rules for promoting high-risk products. With effect from 1 February 2023, the new rules will require firms approving and issuing marketing to have the appropriate expertise and to run stronger checks to determine whether a particular customer and particular investment are well suited. Adverts that incentivise investment in high-risk products through schemes such as “refer a friend” bonuses will be banned. As of 1 December 2022, simplified and prominent risk warnings are now required for high-risk investments.
  • BNPL – Although the FCA does not yet regulate them, BNPL products must comply with financial promotion rules. Unauthorised firms may be committing a criminal offence if they do not have an FCA-authorised firm approving their financial promotions3. In one instance, the FCA intervened to amend or withdraw 66 BNPL promotions because the adverts did not give fair or prominent risk warnings and were misleading consumers in relation to the fees applied. Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said that warnings are particularly important with the current increase of vulnerable customers during the cost of living crisis. Consumers need to be able to make “properly informed decisions” about their money when they need it most. The government is planning on bringing BNPL and Short-Term Interest-Free-Credit products into the scope of financial services regulation.


1 This follows the FCA’s consultation period, with papers published in May and December 2021 (see our previous blog posts here and here).
2 DEPP 6.5A.2G(6)(d)
3 Criminal offence under ss 21 and 25 of the Financial Services and Markets Act 2000.