The Consumer Duty - An Update

The Consumer Duty continues to dominate the headlines despite strong competition from the likes of critical third parties, vulnerable customers and the cost-of-living crisis, to name a few. Perhaps we shouldn’t be surprised, after all the Duty is the biggest regulatory shake-up since the creation of the FCA back in 2013.

The FCA has stated they don’t expect the duty to be a ‘one and done’ type of activity. As such, their work continues to focus our attention. This article will explore the FCA’s latest movements.

Multi-firm Reviews

We’ve had an unprecedented amount of feedback from the FCA in relation to the duty, generally this has been centered around ensuring basic compliance and the detail required from consumer duty assessments, etc. To date, the first two outcomes and outcomes monitoring have drawn the most attention, and from a sector perspective, insurance and payment services firms have too. Don’t be fooled though, the consumer understanding and consumer support outcomes will be next, as will other sectors.

For example, there was the review of the Insurance sector released in the summer of 24. The regulator reviewed board and committee reporting from 20 insurance firms, with the aim of understanding how firms monitor, assess and test the outcomes that customers are receiving. They also wanted to know how firms act after they have identified poor outcomes. While some of the details are specific to insurance firms, the general findings have implications for all firms and are especially useful as guidelines when conducting reviews. They found:

• Approaches focused on processes being completed, rather than on the outcomes themselves.

• Few firms were able to provide clear evidence of where the monitoring of outcomes had directly led to proactive action being taken to improve these outcomes, where necessary.

• Some board or committee reporting contained limited insight into actual customer outcomes, often because metrics/data were not comprehensive enough, or data lacked analysis or threshold/standards did not appear to be appropriately set or communicated.

It’s clear that firms have a lot of work to do to move their outcomes monitoring from day one compliance to day two, where the focus is truly on customer outcomes.

We’ve also had the FCA’s price and value multi-firm review focused specifically on the quality of value assessments, again the FCA found a lack of detail in some assessments. They were, however, especially complimentary of those firms who had identified areas where value could be improved.  

The latest is the multi-firm review of Payments Services firms, published on 9th October 2024; the multi-firm review looked at implementation and gap analysis and mitigation. Of the 23 firms reviewed, just over half were rated as satisfactory, and just under half were found to have only partially implemented the Duty and required significant work to comply with it.

The FCA were positive about firms that had clearly articulated customer-centric purposes and understood what good outcomes and foreseeable harms looked like for their customers. Those that were best able to show compliance had a systematic implementation approach - starting with identifying the target market and defining good outcomes - and had a clear governance structure to monitor delivery of good consumer outcomes.

The review sets out good practice and examples of poor practices that need improvement. The FCA have recommended firms read the review and address any shortfalls or gaps in their own approach.

Our Consumer Duty Gap Analysis can help you to assess any gaps in current policies and practices.

Investigation and Enforcement

We’re seeing a new approach from the FCA when it comes to investigations, with the duty cited in almost all cases. Clearly the duty gives the investigations team leverage and flexibility. As such, the regulator appears to be interpreting the duty quite widely in order to fit their investigatory needs.

To avoid this happening to your firm, we have identified four key steps you can take:

1. Ensure your product reviews, product approvals and value assessments are completed to a high standard, avoiding unsubstantiated or sweeping statements of compliance. Instead focus on the granularity which actually demonstrates that the product functions well for customers

2. Outcomes monitoring must focus on the actual outcomes for customers, rather than process adherence. Firms that approach outcomes monitoring with the mindset of having a certain list of MI to appease the FCA are unlikely to produce the right results. Instead, the approach is to understand that outcomes monitoring is a process, one where you identify ‘what a good outcome is for a customer using your product’ then work backwards to identify the data which informs this.

3. See the duty holistically, covering all of your business to the extent that governance data is used to improve the culture, nature and strategy of the business.   

4. Make a positive change where you spot an issue, for example ensure that you have amended your product’s value, or the product itself following your implementation of the duty – in other words give the FCA something to work with!

We’re on hand to help you through the duty, including ensuring your outcomes monitoring approach is optimized. If you would like to enquire about consultancy support contact us at: robert.bell@rbcompliance.co.uk