The trade body questioned whether the proposals will remove 'bad actors' from the market as intended.

It said that introducing new rules at significant cost to well-run firms will have little to no impact on the firms which are already failing to meet their obligations.

It called the proposals “woolly” and too theoretical.

The FCA said this morning that it is to consult on introducing a sweeping new Consumer Duty which will require firms to do more to protect consumers from harm and bad financial decisions. 

If the plans go ahead, firms will also be required to do everything possible to avoid "consumer harm" at every step of the customer relationship.

The regulator said that its new plans, contained in CP21/36 published today, will ensure a “higher and more consistent standard of consumer protection” for users of financial services. 

Tim Fassam, director of government policy and relations, at PIMFA said: “The FCA has put significant stock in the Consumer Duty being fundamental to its regulatory and supervisory approach going forward. Whilst we do agree that it is right that the FCA looks to assert a standard of higher consumer protection, we are slightly disappointed that despite wide ranging calls for clarity on its proposals, the rules and accompanying guidance published remain somewhat theoretical and woolly.

“PIMFA retains concerns that the inherent subjectivity of the Consumer Duty will ultimately lead to confusion both for consumers and firms in terms of their expectations of a good outcome, and without clarity on what the FCA’s expectations of the Financial Ombudsman Service (FOS) are, and how, or if, they will be codified, we would be concerned that this could lead to a significant rise in cases brought against firms through no fault of their own.

“PIMFA are confident the vast majority of firms in our sector are already operating at, or above, the FCA’s expectations and to an extent, this confidence transmits to the broader financial services sector.

“Our concern, as we set out in our initial response, is that there are clearly firms operating within the market who are either choosing not to follow the rules or struggling to meet their current obligations under them. Introducing new rules and regulations at significant cost to well-run firms will have little to no impact on the firms which are already not meeting their obligations.

“In order for these reforms to be worthwhile and impactful, the Consumer Duty needs to empower the FCA to finally drive the bad actors out of the market through effective supervision and enforcement. It is unclear to us whether or not this will actually be the case.”

This morning the FCA said it wants its new duty to protect customers to help to stop harm before it happens. The new duty is designed to “fundamentally shift” the mindset of firms, the watchdog says.

The new duties will require firms to always put good consumer outcomes at the centre of their businesses, and to focus on the diverse needs of their customers at every stage so that consumers can make good financial decisions and have greater trust in firms.

Previous regulatory actions have highlighted poor practices by firms that cause consumer harm. These include firms presenting information in a way that exploits consumers’ behavioural biases, selling products or services that are not fit for purpose or providing poor customer support, the FCA says.

Under the new duty firms will have to provide consumers with information they can understand, offer products and service that are fit for purpose and provide helpful customer service.

The FCA says it will use assertive supervision and its new data-led approach to intervene quickly when it identifies practices which do not deliver for consumers.

The consultation is open until 15 February and the FCA expects to confirm final rules by the end of July.