Calling all Consumer Duty Champions - how is your Board Report?
Has Consumer Duty been embedded and can governing bodies effectively monitor customer outcomes?
In December 2024 the FCA published a comprehensive review of the first annual Consumer Duty board reports across 180 firms from various sectors, including retail banking, insurance, and investment services. This thematic review evaluates how firms have embedded the Consumer Duty into their operations and whether their governing bodies effectively monitor customer outcomes. The findings provide critical insights into good practices and areas requiring improvement, with particular attention to smaller firms.
Key Findings from the FCA Review
The review highlights a range of practices across the firms evaluated. Good reports focus clearly on customer outcomes and use high-quality data and actionable insights. However, a number of firms fall short in key areas, particularly in providing adequate data quality and evidence of effective board oversight.
Five Key Aspects of Good Reports
Clear Outcomes focus: effective reports go beyond compliance metrics and explicitly detail what good outcomes look like for customers using their products. For example, some firms include case studies illustrating how specific customer needs are met or exceeded, linking this back to the four Consumer Duty outcomes.
Good Quality Data: the best reports use high-quality Management Information (MI) to support conclusions about customer outcomes. This includes data on complaints, product performance, and customer feedback, along with clear explanations of how this evidence demonstrates good outcomes. The better performing firms also use trend analysis and benchmarks to provide context.
Analysis of different customer types: strong reports provide a comprehensive breakdown of customer experiences, ensuring that outcomes for different groups—including vulnerable customers—are analysed. For instance, some firms segment MI by customer demographics and highlight tailored interventions to address disparities.
Clear processes for report production: good reports have well-defined processes for preparation, review, and approval. This includes a timeline for collecting data, drafting, and board-level sign-off, ensuring the report is both timely and actionable. Firms also demonstrate how these processes align with internal governance structures.
A focus on Culture: these are reports that highlight their commitment to fostering a positive culture that prioritises customer outcomes. This includes providing examples of training initiatives, leadership engagement, and how cultural values are embedded across the organization to ensure alignment with Consumer Duty objectives.
Five Areas for Improvement
Better Data Quality: a number of firms lack sufficient data quality to justify their conclusions or provide their governing bodies with confidence in meeting Consumer Duty obligations. Explanations accompanying MI are often inadequate, leaving boards unable to fully assess the effectiveness of customer outcomes.
Comprehensive View Across Distribution Chains: some firms fail to provide evidence of effective information sharing with third parties across their distribution chains. Reports often lack examples or analysis of the information being passed along the chain to monitor whether customers receive good outcomes. Additionally, some reports do not include evidence that good outcomes are being delivered through outsourced consumer support. The FCA reminds firms that they cannot delegate their responsibilities under the Duty to third parties. For instance, firms should ensure that support provided by third parties meets the Duty standard as outlined in FG/22-5 (paragraphs 9.40-9.41). Including examples of how these responsibilities are managed helps provide assurance to the board.
Analysis of Different Customer Types: reports frequently do not show enough consideration for outcomes experienced by different customer groups, particularly vulnerable customers. Firms should ensure that MI captures these groups and provides evidence of how their specific needs are addressed. For example, highlighting case studies or feedback from vulnerable customers demonstrates a firm’s commitment to fair treatment.
Challenge from the Board: effective challenge from governing bodies is often missing, with reports failing to include evidence of board-level discussions or decision-making. For instance, some firms do not include board minutes or examples of questions raised by directors during the review process. Boards need to actively engage with reports to identify gaps and ensure the firm’s approach aligns with Consumer Duty expectations.
Taking Effective Action: action plans are sometimes vague, lacking clear timescales, designated action owners, or data to monitor progress and outcomes. The FCA emphasises the need for firms to link actions directly to identified issues and ensure follow-up. Firms should include timelines for implementing improvements, assign responsibility to specific teams or individuals, and specify the metrics used to evaluate success.
Focus on Smaller Firms
Smaller firms face unique challenges in meeting the Consumer Duty’s requirements. The FCA acknowledges these differences, stating:
"We are aware that governance considerations differ considerably between firms depending on scale. The smallest firms will lack dedicated compliance and audit functions as well as boards, so observations above regarding e.g. 2LOD and 3LOD may not be applicable. We said during our Consumer Duty webinar in December 2023 that smaller firms might consider asking a ‘critical friend’ with sufficient understanding of the Duty to provide impartial feedback on a firm’s approach and report."
The FCA recognises that smaller firms may lack the sophisticated data strategies of larger firms and be more limited in the range of MI they can access. This incorporates monitoring outcomes for different groups of customers, including those with characteristics of vulnerability. In some cases, smaller firms may only encounter a single customer with a specific need. Nonetheless, all firms are expected to use available data to draw reasonable conclusions about whether their customers receive good outcomes.
Two important metrics that are available to most firms are general customer feedback and complaints. Complaints, in particular, provide valuable insights when paired with effective root cause analysis. Smaller firms can also draw data from external sources such as the Financial Ombudsman Service. These data points, coupled with qualitative analysis and case studies of individual or small groups of customers, help smaller firms produce robust reports that meet the Consumer Duty’s requirements.
The FCA highlights that smaller firms often struggle with data quality and board-level engagement but have the advantage of being more agile and focused. Key recommendations for smaller firms include:
Leveraging existing data effectively
Focusing on clear and concise reporting tailored to their business model
Involving senior leaders actively in the Consumer Duty implementation process to drive meaningful improvements
Implications for Firms
For firms of all sizes, the FCA’s review highlights the importance of embedding the Consumer Duty into their governance and operations. Firms ensure that their board reports are actionable, evidence-based, and centered on customer outcomes. Smaller firms, in particular, view this as an opportunity to differentiate themselves by demonstrating their commitment to delivering fair and positive customer experiences.
By addressing the identified areas for improvement and embracing the principles of the Consumer Duty, firms enhance their governance frameworks, build trust with customers, and ultimately gain a competitive advantage in the market.
If you would like some guidance to navigate the complexities of Consumer Duty, whether you are an established firm or a start-up, get in touch with Shapes First.
