Principle 12 of the Consumer Duty, articulated as “a firm must act to deliver good outcomes for retail customers,” sets a rigorous standard that reshapes how financial firms engage with consumers. By demanding a higher level of conduct, this principle ensures that fairness and consumer protection are not only prioritized but also embedded into every aspect of a firm’s operations. Here, we examine how Principle 12 fosters consumer fairness through its core tenets.

Proactive Consumer Focus

Embedding Consumer Interests

Principle 12 mandates that firms place consumer interests at the forefront of their business practices. This proactive focus is designed to:

• Address Genuine Needs: Firms must evaluate whether their products and services genuinely meet the needs and expectations of their customers. This involves continuous assessment and adaptation to ensure alignment with evolving consumer demands.
• Promote Welfare: By prioritizing consumer welfare, firms are encouraged to design and deliver products that offer real value, enhancing overall consumer satisfaction and trust.

Higher Standards than Previous Principles

Surpassing Previous Expectations

Principle 12 raises the bar significantly compared to its predecessors, Principles 6 (customers’ interests) and 7 (communications with clients). The shift to:

• Stricter Requirements: Principle 12 introduces more demanding standards, requiring firms to go beyond mere regulatory compliance. It compels firms to actively seek and achieve positive outcomes for consumers rather than just adhering to basic fairness principles.
• Enhanced Accountability: This higher standard encourages firms to scrutinize their practices more rigorously and to innovate in ways that consistently benefit consumers.

Accountability Across the Distribution Chain

Ensuring Fairness Throughout

Principle 12 extends its reach beyond direct customer interactions, encompassing all entities involved in the distribution of financial products. This broader scope ensures:

• Inclusive Accountability: Every firm within the distribution chain must uphold fairness. This means that all parties, including intermediaries and third-party providers, are held accountable for the outcomes experienced by consumers.
• Holistic Protection: By including the entire supply chain, Principle 12 helps prevent gaps in consumer protection and ensures that fairness is maintained at every touchpoint.

Avoiding Foreseeable Harm

Mitigating Risks

An essential aspect of Principle 12 is its emphasis on preventing foreseeable harm. Firms must:

• Identify and Assess Risks: Companies are required to proactively identify risks associated with their products and services. This involves comprehensive risk assessments to foresee potential detriments that could affect consumers.
• Implement Mitigation Measures: Firms must take reasonable steps to mitigate identified risks. This includes designing products with built-in safeguards and revising practices to address potential issues before they impact consumers.

Supporting Financial Objectives

Empowering Informed Decisions

Principle 12 also focuses on enabling consumers to achieve their financial objectives. To support this:

• Provide Adequate Information: Firms must ensure that all communications are clear, transparent, and accessible. This helps consumers make well-informed decisions about their financial choices.
• Assist Throughout the Journey: Support extends throughout the customer journey, from initial information provision to ongoing assistance, ensuring that consumers have the tools and support necessary to achieve their financial goals.

Conclusion

Principle 12 represents a significant advancement in consumer protection within the financial services industry. By mandating a proactive approach to consumer interests, establishing higher standards of conduct, and extending accountability across the distribution chain, it ensures a comprehensive framework for fairness. The principle’s focus on preventing harm and supporting consumers’ financial objectives further enhances its role in safeguarding consumer welfare. As firms adapt to these rigorous expectations, they will contribute to a more equitable and consumer-centric financial ecosystem.