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January 15, 2025
FCA Consumer Duty focus - Board reports
The FCA published ‘good practice and areas for improvement’ findings on 11th December 2024, following its review into firms’ approaches to completing the first annual Consumer Duty Board report.
We recommend that firms review their 2024 Board report, and their Consumer Duty reporting processes and procedures, in light of the findings set out in this report, and that smaller firms take account of the FCA’s specific smaller firms commentary. Firms might want to take the opportunity to create an additional interim report, perhaps in January or February, to help embed the findings.
The FCA report sets out the results of a targeted and thematic review that the FCA carried out on the first annual Consumer Duty Board reports from 180 firms across the sectors it regulates. The sample included a range of small, medium and large firms with a range of business models, including larger firms with dedicated supervisory support, as well as 55 smaller firms (some of which have less than ten employees) to provide insights into the particular challenges faced by smaller firms.
The examples of good and poor practice set out in the report and summarised briefly below are not intended to be prescriptive in terms of what Board reports must contain; rather, the FCA is sharing these findings to enable firms to decide for themselves how to improve the Board oversight and Board reporting processes in the next year of embedding the Consumer Duty.
Overall Findings
The best reports were structured in a way that made them easy for their Boards to scrutinise the key elements that the rules and guidance suggest they should cover.
Headlines: Smaller Firms
The FCA found areas of good practice from firms of all sizes, including those with fewer than ten employees. As such, much of the good practice and areas for improvement cited in the report applies to firms of all sizes. The FCA acknowledges that smaller firms have different challenges. In line with the requirements set out in the FCA’s rules and guidance, the headline commentary is set out under four headings.
Governance:
Smaller firms may lack dedicated compliance and audit functions. Instead, they may benefit from having a knowledgeable ‘critical friend’ to provide impartial feedback on their approach to the Consumer Duty. ICS has assisted numerous firms with all elements of Consumer Duty compliance and is well placed to act as such a ‘critical friend’.
Monitoring and Outcomes:
Smaller firms may find they are more limited in the range of MI they can access. Where proportionate, they should look for opportunities to draw insights from external data sources, including FOS and relevant trade bodies (e.g., BIBA or the ABI).
Actions taken to comply with Duty obligations:
Given their limited resource, smaller firms may take fewer actions and have limited MI to measure effectiveness of those actions, and may find external experts helpful in advising on effective actions. In some instances, however, their size and flexibility may allow smaller firms to provide more tailored support to individual customers.
Future business strategy:
Smaller firms may encounter fewer customers with different specific needs. Extensive policies and structures dedicated to these customer segments may be unnecessary. The FCA still expects smaller firms to learn from transactions with different groups of customers to ensure they deliver good outcomes in the future.
Detailed Findings
The FCA set out its detailed findings under four main headings, again structured in line with the requirements set out in the FCA’s rules and guidance:
- Report governance;
- Monitoring and outcomes;
- Actions taken to comply with Duty obligations; and
- Future business strategy.
Report Governance
Examples of good practice
- Reports produced over a sufficient time period to allow for relevant business areas to be involved in the production of the report, with clear input of key business areas and the involvement of any second and third lines of defence (where they exist).
- Include details of Board challenge, either in the report itself or associated minutes (e.g., requests from the Board for further information).
Areas for improvement or change
- Reports produced almost solely by Compliance teams or a dedicated Consumer Duty function, which risks a lack of scrutiny by and input of key stakeholders with subject matter expertise.
- Reports should be produced with the involvement of, and input from, relevant business areas, forums and committees, to ensure that the Board is not the sole layer of approval.
Monitoring and Outcomes
Examples of good practice
- Detailing what constituted a good outcome for customers, providing opportunity for review by the governing body, alongside evidence of poor outcomes customers were experiencing.
- Effective use of a range of quantitative and qualitative data from internal and external sources, including comparator and benchmarking data (e.g., FOS decisions and feedback).
Areas for improvement or change
- Failing to give clear definitions of good outcomes across different products and services that could be tested against the available MI, or failing to include thresholds that were being used to monitor MI.
- A lack of well-reasoned justifications for setting thresholds for MI indicators at certain levels, and limited references to the types of data used.
Actions Taken to Comply with Duty Obligations
Examples of good practice
- Explaining changes that have been made to the firm’s data collection to improve its monitoring abilities and to mitigate the risk of undetected issues.
- Specific illustrative examples to assure Boards that action had been taken to address risks and issues, with evaluation of the effectiveness of these actions. This applies to firms in all sectors and of all sizes.
Areas for improvement or change
- Outlining issues that had been identified, or actions taken, but not providing assurance that there was a clear plan to resolve the issues nor evidence to confirm that the remediation had been effective.
- Reports failing to assure the Board that actions had been taken to address issues faced by consumers with specific characteristics of vulnerability.
Future Business Strategy
Examples of good practice
- Firms incorporating the Duty into their business strategy and purpose, including details of amendments made to build in the Duty outcomes.
- Referencing people initiatives to ensure the Consumer Duty was embedded in the culture of the firm, evidencing the ‘tone from the top’ and demonstrating that senior leaders were committed to the Duty and have promoted its importance.
Areas for improvement or change
- Stating that future business strategy is aligned with the principles of the Duty with no detail on any review of the strategy or if any changes were needed to ensure alignment.
- Outlining future actions but not providing assurance that there was a clear plan to resolve the issues identified, or with actions lacking owners and timescales.
Recommended Actions
We recommend that firms review their 2024 Consumer Duty Board report, and their Consumer Duty reporting processes and procedures, in light of the findings set out in this report, and that smaller firms take account of the FCA’s specific smaller firms’ commentary. Firms might want to take the opportunity to create an additional interim report, perhaps in January or February, to help embed the findings.
ICS Can Help
Insurance Compliance Services can assist firms in considering whether they have robust and relevant processes and procedures in place to demonstrate compliance with Consumer Duty, to demonstrate whether the firm is utilising the most appropriate MI and to demonstrate whether good customer outcomes are being achieved or not, including appropriate records of assessments, reviews and fair value considerations. If you have any questions about, or need any support in relation to, preparing for or presenting a Consumer Duty board report, we will be happy to discuss how we can assist.
