Not Everyone Can Be Protected from All Harm

A misconception with the Consumer Duty is that it places an obligation on firms to protect consumers from all harm.

In recent articles, we have looked at when harm is ‘reasonably foreseeable’ and ways in which firms should act to avoid causing such harm. However, harm can also occur from circumstances that are not reasonably foreseeable. For instance, the events of the last few years remind us all that we live in an age of uncertainty, where global political, economic, and environmental factors can have profound impacts on market conditions and society as a whole. These wider factors may unexpectedly affect the attractiveness, value, or suitability of certain products for some customers.

Sudden changes, for example, may mean that firms only identify harm when it is too late to act. In general insurance, this could mean that a customer’s needs or circumstances may change abruptly just before they need to make a claim. Here, it would not be reasonable for a firm to be expected to act to prevent the harm occurring.

More generally, financial products often involve an element of risk and customers may suffer a negative outcome should that risk materialise. Firms are not expected to protect customers from risks where the firm reasonably believes that the customer understands and accepts the risk. ‘Reasonableness’ in this context will depend on the nature of the product offered, as well as the suitability of the product design and the associated communications and customer service provided. Firms will also be expected to have adhered to the relevant regulatory requirements in their design and distribution of the product.

Customers, ultimately, are responsible for their own actions and, as human beings, will sometimes make poor decisions which are not in their best interests. A firm may act reasonably and advise customers against a course of action, ensuring that they understand the risks involved, but some customers will insist on pursuing harmful action anyway. Provided the firm has made the customer aware of the risk, it is not able, or obliged, to prevent the harm occurring. Firms are also not expected to go beyond what can be reasonably expected in their customer service.

Harm may occur when firms withdraw a product or service. However, this does not mean that firms can no longer withdraw these. Firms should do so in a way which is reasonable. This would mean not withdrawing a product or service abruptly or neglecting to consider the impacts the withdrawal may have on customers or specific groups of customers. If for example, the withdrawal of a product or service, is adequately communicated and the customer given time or assistance to find an alternative, this would likely be reasonable and mitigate the risk of harm.

RWA has launched a Consumer Duty gap analysis to help firms implement the new rules and guidance. If you would like more information about this or require any assistance in relation to the new Consumer Duty, please contact your RWA Business Manager. Alternatively, get in touch via email at helpdesk@rwagroup.co.uk or call 01604 709509.