Andrew Griffith, City of London minister, has raised concerns that flagship reforms to stop consumers being ripped off by financial services companies could damage the sector and trigger a wave of spurious law suits, putting him on a collision course with the UK’s chief financial regulator.
Griffith has criticised the consumer duty, a key measure by the Financial Conduct Authority that from July requires banks, insurers and other financial services companies to prove they have acted in their customers’ best interests and produced “good outcomes” in areas such as pricing.
Bosses of financial services businesses have complained about the administrative burdens associated with the consumer duty, and warned it could unleash spurious lawsuits by opportunistic claims management companies that argue customers who run into trouble have not been treated fairly.
One industry insider said Griffith was “scathing” about the duty at a recent closed-door dinner with senior figures from the sector.
Another person briefed on the minister’s remarks said he had strongly criticised the FCA reform.
Griffith is said by colleagues to be worried the consumer duty will impose new regulatory burdens on the financial services industry just at the time the Treasury is trying to relax some City rules as part of a “Brexit opportunity”.
While the FCA was asked by ministers in its 2021 financial services act to beef up consumer protection, government insiders said Griffith wants to avoid a “compensation culture” with vexatious claims.
They added that he wanted to ensure the FCA listened to the concerns of the industry and ensured the new rules relating to the consumer duty were proportionate and clear.
The Treasury declined to comment, but one government insider said Griffith liked to have “frank and open” discussions with the sector.
The Treasury did not deny that Griffith was concerned about the consumer duty reform and had raised it with the FCA.
Griffith has reminded the FCA of a new “secondary” objective set out in the government’s financial services bill for watchdogs to promote economic growth and competitiveness, alongside maintaining high regulatory standards and financial stability.
Ministers have a right to ask regulators to look again at their rules, although ultimately the watchdogs have the final say.
The Treasury said: “People should benefit from appropriate levels of consumer protection and it is right that the independent regulator maintains responsibility for delivering these standards.”
The FCA declined to comment on any discussions with Griffith over his concerns, citing the confidentiality of its dealings with ministers.
It said the consumer duty would “encourage innovation while driving competition and growth in the financial services industry in the UK”.
In a speech last week, Sheldon Mills, FCA head of consumers and competition, said that while some companies had made “excellent progress” in implementing the duty “a small number of firms have seen the task as too big and adopted an avoidance tactic in the hope that it will all go away”.
“You must act now,” said Mills. “The deadline of 31 July will not be moved.” Last year the FCA gave financial services companies an extra three months to comply with the consumer duty requirements because of industry concerns about implementation.
The government already has a prickly relationship with the UK’s leading financial watchdogs after clashing with them over the so-called Edinburgh reforms which aim to make regulation less burdensome after Brexit.
In December, Griffith warned the FCA and the Bank of England’s Prudential Regulation Authority that they would have to improve their operational efficiency so they could deliver the “world-leading” standards that were “critical” to the industry and a “key priority” for the government.