Is your house in order? FCA complete their Consumer Duty multi-firm review.
FCA’s Payments Consumer Duty multi-firm review: “It is better for firms to resolve issues now than wait for us to identify and intervene”
Last week the FCA published their Payments Consumer Duty multi-firm review where the regulator examined 23 payments firms, including payment service provides, e-money issuers, merchant acquirers, money remitters, and open banking firms, to assess their Consumer Duty adherence.
The findings revealed a split: just over half of these firms were rated as satisfactory in their Consumer Duty implementation, while nearly half required substantial improvement, showing moderate to high risks of delivering poor consumer outcomes.
“Firms should read this review, consider how their firm compares, and use it to address any shortfalls or gaps and raise standards. It is better for firms to resolve issues now than wait for us to identify and intervene on issues and remediate any harm later.”
Firms showing compliance with the Consumer Duty viewed the implementation of the Duty as aligned with their long-term interests, defining clear, customer-focused objectives and recognising potential risks. These firms use structured governance frameworks to ensure Duty compliance and to address any gaps proactively. They systematically identify their target markets and applied comprehensive measures to assess the four consumer outcomes, using Red, Amber, Green ratings to pinpoint and address shortfalls.
In contrast, the rest of the firms underestimated the Duty’s requirements, assuming that payments services posed lower consumer risks than other regulated products, such as investments. These firms often seem to rely on pre-existing processes and fail to establish clear, Duty-aligned controls, risking poor consumer outcomes. Without defined target markets or effective Management Information linked to Duty standards, such firms struggle to measure or improve consumer outcomes accurately, leaving potential compliance gaps unaddressed.
Here are the key areas of the FCA report, summarising the output of the review against the four outcomes.
Products and services: establishing the target market
Firms should define target markets with enough specificity to reflect product characteristics, risk profile, and complexity.
Broad target markets are only suitable for low-risk products designed for a wide consumer base.
For medium- to high-risk products, narrow and well-defined target markets are essential to minimise consumer harm and align with customer risk appetite.
An overly broad target market can obscure risks and increase the chance of products misaligned with consumer needs, resulting in poor outcomes.
Products and services: agent oversight
Firms bear responsibility for their agents’ actions and must establish effective systems to oversee agent compliance with the Duty.
When delegating activities to agents, firms must ensure ongoing compliance monitoring, beyond initial onboarding and training.
The FCA review found gaps in firms' oversight processes, with unclear methods for confirming agents met Duty requirements.
Examples include agents providing customer support or communications; without proper ongoing testing, it’s unclear if agents meet prescribed standards in practice.
Fair Value Assessments
The Consumer Duty requires firms to ensure that the prices of their products and services provide fair value to customers. This involves a comprehensive assessment to confirm that prices are reasonable relative to the benefits customers receive. The FCA found many assessments lacking depth, with firms often relying on competitive pricing alone or comparing prices with competitors rather than conducting a full analysis of the benefits and limitations of their offerings. Additionally, some firms with variable charge menus failed to consider how usage-based charges impact different customer groups. Ultimately, many firms missed clearly assessing whether fair value was achieved, leaving room for improvement in providing justification for pricing decisions.
Consumer understanding
Firms must support customers in making informed financial decisions by tailoring communications to meet their needs. The FCA observed good practices, such as firms pre-testing communication clarity and assessing its effectiveness post-distribution, to support better consumer understanding. However, some firms showed minimal change in communication practices since the Duty’s implementation, often relying on basic indicators like open rates instead of thorough testing. To meet Duty expectations, firms should implement robust methods to test communication effectiveness regularly, identifying areas for improvement to ensure consumers have the understanding needed to make informed choices.
Consumer support
The Duty mandates that firms offer accessible support that meets customer needs, with a particular focus on vulnerable consumers. The FCA highlighted firms that effectively tailored support channels and swiftly addressed consumer complaints as examples of best practice. In contrast, some firms had unclear messaging for support services, which left customers unaware of or unable to access needed help, as evidenced by high complaint volumes. For issues such as frozen accounts, some firms improved their communication practices, ensuring that clients received better information within the constraints of financial crime regulations. To maintain compliance, firms should continuously evaluate MI, promptly addressing any identified gaps in customer support.
Governance
Governance structures must incorporate the Consumer Duty principles, with Boards regularly reviewing and challenging Duty-related issues. While most firms provided Board members with documented updates on Duty compliance, there was limited evidence of active discussion or challenge within meeting minutes. Consumer Duty Champions did not consistently raise Duty matters in governance discussions, indicating a gap in implementation. Some firms adjusted policies, such as providing additional training to support vulnerable customers, yet few examined whether their incentive structures might unintentionally lead to consumer harm. Firms should enhance governance practices to ensure Duty principles are embedded throughout their organisational strategies and policies.
Management Information (MI)
Effective MI is essential for firms to assess and evidence compliance with the Duty. Firms that demonstrated strong MI practices had metrics directly aligned with Duty outcomes, complete with triggers for investigation and designated owners for addressing issues. However, many firms struggled with developing comprehensive MI frameworks, either failing to connect MI with Duty outcomes or collecting an overwhelming number of metrics that were difficult to manage regularly. To meet Duty expectations, firms must establish a focused and sustainable MI suite that is closely tied to the Duty’s key outcomes, allowing for regular monitoring and action on any potential consumer outcome risks.
Examples of good and poor practice
Good Practices
Clear governance and oversight to monitor intermediaries, setting clear consumer outcome expectations and regular agent compliance checks using RAG-rated MI.
Comprehensive value assessments considering both financial and non-financial benefits, segmented by consumer groups; clear remediation for any value shortfalls.
Communication testing (e.g., A/B testing, surveys) pre- and post-release to ensure clarity; detailed MI supporting customer comprehension assurance.
Tailored support channels, SLAs for timely response, MI-driven problem identification and remediation actions, addressing needs of vulnerable consumers.
Regular Board review with challenge and action on Duty outcomes, detailed minutes of Board discussions, and concise MI packs supporting Duty matters.
MI aligned with Duty outcomes, RAG ratings for outcome tracking, clear remediation plans with assigned owners and follow-ups to measure remediation success.
Poor practices needing improvement
Inconsistent oversight, lack of clarity in intermediaries’ roles, limited evidence of systematic monitoring, and insufficient agent support for Duty compliance.
Value assessments limited to price benchmarking, insufficient analysis of non-financial benefits, and lack of clarity on whether products deliver fair value.
Limited or no communication testing; overreliance on proxy metrics like email open rates or NPS, with no clear methods to verify consumer understanding.
Insufficient support channels, unclear service signposting, inadequate MI on support outcomes, resulting in poor complaints handling and support delivery gaps.
Lack of evidence in Board governance for Duty compliance, minimal documentation of Board challenges, and omission of Duty considerations in key governance documents.
Minimal updates to pre-Consumer Duty MI, inadequate links between MI and Duty outcomes, lacking statistical thresholds to identify poor outcomes effectively.
Next steps
The FCA will continue to monitor firms' adherence to the Consumer Duty, providing individual feedback and expecting prompt action on identified gaps. Where potential or unaddressed consumer harm exists, the FCA will consider using regulatory tools and may restrict business activities for serious non-compliance. Firms with significant shortfalls may be required to implement corrective measures, while the FCA will also conduct further cross-sector reviews on specific Duty themes. This approach aims to foster best practices across financial services by learning from diverse industry sectors.
