FCA Guidance on Consumer Duty Reports
The report outlines the results of the FCA’s targeted and thematic review that it carried out on the first annual Consumer Duty board reports from 180 firms. Acknowledging “one size does not fit all”, the FCA provides examples of both good and bad practices for firms to consider on how to improve the board oversight and board reporting processes in the next year of embedding the Consumer Duty.
The FCA identified 5 key aspects of good reports:
- Dedicated sections focussed on each of the 4 outcomes, detailing what good outcomes looked like for customers holding their products.
- Commentary on good outcomes supported by good quality Management Information (“MI”) that backed up the firm’s conclusions.
- Consideration of different groups of customers, including those with characteristics of vulnerability.
- Processes in place for producing reports for firms’ governing bodies to review and approve within the necessary timeframe.
- Commentary emphasising firms’ commitment to effectively implementing the Duty and the role of a positive culture in delivering good outcomes.
The FCA identified the following 5 areas for improvement:
- Some firms lacked the necessary data quality to support their conclusions or assure governing bodies that they are meeting their obligations. Additionally, some firms did not provide adequate explanations with their Management Information to show that it proves good outcomes for customers.
- Some reports did not contain evidence that an appropriate amount and types of information have been shared between the firm and third parties across the distribution chain.
- Some firms did not evidence that adequate consideration had been given to outcomes for different groups of customers, including those with characteristics of vulnerability.
- It was not always evident that there had been effective challenges from firms’ governing bodies on the content of the reports, for example, through the minutes of board meetings.
- Some action plans and improvements were not accompanied by further details such as timescales, action owners and clarity on the data that would be used to evidence good outcomes.
Smaller Firms
The FCA provides the following guidance for smaller firms:
- Smaller firms may lack dedicated functions but can benefit from a knowledgeable advisor for impartial feedback on Consumer Duty.
- Smaller firms may have limited MI access but should seek insights from external sources like the Financial Ombudsman Service and trade bodies.
- With fewer resources, smaller firms may take fewer actions and have limited MI to measure effectiveness. External experts can help and their flexibility may allow for more tailored customer support.
- Smaller firms may have fewer customers with specific needs, making extensive policies unnecessary. However, they should learn from diverse customer interactions to ensure good outcomes.
All firms falling within the scope of the Consumer Duty should consider this report’s findings and guidance on good and poor practices to inform the preparation of their next Consumer Duty board reports.
Waystone’s Compliance Solutions helps firms enhance their Consumer Duty reporting processes and meet regulatory requirements. To learn more, please reach out to your usual Waystone representative or contact our UK Compliance Solutions team.