Summary
The Financial Conduct Authority (FCA) released a recent paper on “Consumer Duty Board Reports: Good Practice and Areas for Improvement.” It reviews the first annual board reports submitted by firms to assess their adherence to the Consumer Duty, which sets high standards for customer protection across financial services. The review covers practices in governance, data usage, consumer outcomes, and business strategies, highlighting both exemplary practices and areas requiring improvement.
Download as PDF: Summary Insights
LINK: Original FCA Link
Key Takeaways
- Clear Reporting Structures: Effective reports were well-structured, enabling boards to scrutinise and assess key outcomes.
- Focus on Outcomes: Reports dedicated sections to the four Consumer Duty outcomes: products and services, price and value, consumer understanding, and consumer support.
- Data Quality: High-quality data, including both quantitative and qualitative measures, underpinned meaningful insights and monitoring.
- Customer Vulnerability Considerations: Strong reports detailed specific actions for vulnerable customer groups, reflecting tailored approaches.
- Governance Processes: Effective involvement of second- and third-line defence functions provided assurance on monitoring and compliance.
- Actionable Insights: Strong examples included clear action plans with ownership, timelines, and metrics for success.
- Board Engagement: Reports showing board challenges and follow-ups exemplified a culture of accountability.
- Distribution Chain Oversight: Good practices included robust monitoring and sharing of information with third-party distributors.
- Culture Integration: Embedding Consumer Duty principles into firm culture, training, and remuneration was identified as crucial.
- Strategic Alignment: Forward-looking strategies aligned with Consumer Duty principles were highlighted as good practices.
- Use of External Insights: Smaller firms benefitted from external data sources and critical friends for feedback on adherence.
- Improvements in Consumer Communication: Examples included redesigned communications improving consumer understanding and engagement.
Key Gaps
Data Quality and Usage
- Insufficient Data: Some firms lacked adequate data quality to justify conclusions or provide assurance to their governing bodies about meeting obligations under the Consumer Duty.
- Undefined Outcomes: Reports often failed to define “good outcomes” clearly, making it difficult to assess whether the data supported these claims.
- Threshold Justifications: Firms frequently did not explain the thresholds set for monitoring Management Information (MI) metrics or their alignment with good outcomes.
Customer Vulnerability
- Generalised Approach: Many firms treated vulnerability as a generic category rather than addressing the specific needs of distinct groups.
- Misalignment of Statements and Data: Several reports included statements about improving outcomes for vulnerable customers, but the accompanying data indicated otherwise.
Governance and Oversight
- Board Engagement: Limited evidence of effective challenge from governing bodies on the content and conclusions of reports.
- Lack of Stakeholder Input: Reports were often produced solely by compliance teams, with minimal input from key business areas and forums, risking a lack of ownership of issues identified.
Distribution Chain Oversight
- Inadequate Information Sharing: Many reports lacked evidence of effective information exchange across distribution chains, which is critical to ensure customer outcomes are consistent throughout.
Action Plans
- Vague or Incomplete Actions: Action plans were sometimes vague, lacking owners, timelines, or metrics to track progress.
- Ineffective Follow-Up: There was little or no evidence to confirm the effectiveness of actions taken to address identified risks or issues.
Consumer Understanding
- Limited Assessment: Some firms did not adequately assess whether their communications supported consumer understanding or led to desired behaviours.
- Insufficient Reviews: Reports often did not detail efforts to test and improve customer-facing communications.
Strategic Alignment
- Lack of Detail: While firms often claimed alignment between their strategies and the Consumer Duty, reports frequently failed to demonstrate how business strategies had been reviewed or adapted to ensure compliance.
Closed Products and Services
- Overlooked Obligations: Many firms did not fully account for closed products, failing to assess and address poor outcomes for customers still using these services.
Training and Culture
- Missing Evidence: Some reports referenced efforts to embed Consumer Duty principles into the firm’s culture but lacked tangible evidence, such as training metrics or changes to remuneration frameworks.
Smaller Firms
- Resource Constraints: Smaller firms faced challenges due to limited access to sophisticated data strategies and external insights, resulting in gaps in monitoring and reporting.
Good Practice Noted
Governance and Oversight
- Clear Processes for Report Production: Effective reports demonstrated the involvement of multiple business areas, forums, and committees, with sufficient time allocated for preparation.
- Board Challenge: Good reports included evidence of board-level scrutiny, such as requests for additional information and specific follow-ups on issues like target markets and consumer vulnerability.
- Use of Champions: Firms effectively leveraged Consumer Duty Board Champions to drive the Duty’s implementation and provide oversight.
Data Quality and Analysis
- Comprehensive MI: Strong reports combined quantitative and qualitative data, including customer feedback, complaints data, and Financial Ombudsman Service insights.
- Defined Outcomes: Some firms provided clear definitions of what constituted “good outcomes,” supported by MI and benchmarks for evaluation.
- Actionable Insights: Firms demonstrated how data gaps were identified and addressed through improvement plans.
Focus on Customer Vulnerability
- Proactive Monitoring: Leading firms actively monitored outcomes for customers with characteristics of vulnerability, often using specific models (e.g., the TEXAS model) to identify and address needs.
- Tailored Solutions: Examples included bypassing standard processes for customers with physical limitations and tracking outcomes for vulnerable groups.
Action Plans
- Detailed Remediation Efforts: Effective action plans included specific measures, timelines, ownership, and metrics to track success.
- Evaluation of Effectiveness: Reports showed how actions, such as improving customer journey touchpoints or redesigning products, positively impacted customer outcomes.
Consumer Understanding
- Improved Communications: Good practices included redesigning customer communications to enhance readability and comprehension, supported by testing and external reviews.
- Digital Innovation: Examples included personalised videos to help customers understand their statements, leading to measurable improvements in engagement.
Distribution Chain Oversight
- Robust Monitoring: Effective reports detailed ongoing monitoring of third-party administrators and described processes to ensure information was shared across the distribution chain.
- Industry Collaboration: One firm’s use of an industry-developed Feedback Template to share sales data with asset management companies stood out.
Strategic Alignment
- Integration into Strategy: Some firms demonstrated how Consumer Duty principles had been embedded into their business strategies, with measurable outcomes tied to strategic goals.
- Culture of Compliance: Reports highlighted initiatives such as Duty-specific training for staff, changes to performance management systems, and clear leadership commitments to the Duty.
Consumer Support
- Enhanced Support Systems: Examples included training for frontline staff, streamlining account management queries, and reducing friction in customer interactions.
- Accessibility Improvements: Firms introduced British Sign Language communications and tools for self-disclosure of vulnerabilities.
Product and Service Governance
- Target Market Profiles: Effective reports included detailed profiles of target markets and demonstrated how products and services aligned with customer needs.
- Price and Value Assessments: Firms linked fees and charges to the cost of providing products, ensuring fair value for customers.
Smaller Firms
- Critical Friend Approach: Smaller firms successfully used external advisors or “critical friends” to review their Consumer Duty implementation.
- Flexibility and Tailored Support: Smaller firms leveraged their nimbleness to provide personalised support to individual customers.
Innovative Ideas
- QR Codes for Feedback: Firms introduced QR codes on paper communications to gather more customer feedback effectively.
- Tailored Support for Vulnerable Customers: Examples included bypassing standard processes for customers with physical limitations.
- Digital Accessibility Enhancements: Implementation of British Sign Language in communications and usability-focused design improvements.
Key Associated Statistics
- Firm Sample: The review assessed 180 firms across various financial sectors.
- Training Coverage: Many firms reported high staff completion rates for Consumer Duty-related training.
- Operational Changes: One firm revised over 650 customer communications, finding 99% required changes.
- Action Effectiveness: Increased vulnerability disclosures and improved accessibility metrics were noted following targeted initiatives.
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