Following a review into 180 firms’ approaches to completing the first annual Consumer Duty board report, the FCA has set out guidance on good practice and areas for improvement.
The FCA noted that the best reports were structured so that they were easy for boards to scrutinise the key elements that the rules and guidance suggest they should cover. Five key aspects of good reports were:
- Clear outcomes focus – dedicated sections for each of the four outcomes, detailing what they looked like for customers
- Good quality data – commentary on good outcomes supporting by good quality management information that backed up the firm’s conclusions
- Analysis of different customer types – consideration of different customer groups, including those with vulnerability characteristics
- Clear processes for production of the report – with clear timeframes for governing bodies to review and approve
- A focus on culture throughout the firm – emphasising firms’ commitment to effectively implementing the Consumer Duty and the role of positive culture in delivering good outcomes.
In contrast, the FCA also highlighted five areas for improvement:
- Better data quality – some firms did not have sufficient data quality to justify conclusions or give governing bodies adequate assurance that firms are meeting their obligations
- Comprehensive view across distribution chains – some reports did not contain evidence that appropriate amounts and types of information were shared between the firm and third parties across the distribution chain.
- Analysis of different customer types
- Challenge from the board – it was not always evident that there had been effective challenge from firms’ governing bodies on the content of the reports, for example through board minutes
- Taking effective action – some action plans and improvements were not accompanied by details like timescales, action owners, and clarity on the data required to evidence good outcomes.
The FCA also gave specific guidance throughout for smaller firms, and reassured them that it had found good practice in firms of all sizes, including those with fewer than 10 employees. It set out suggestions for how smaller firms might meet Consumer Duty requirements, and noted that it would be open to considering more targeted work where beneficial.