FCA updates Consumer Duty Board report advice for smaller firms

The FCA has updated the page on its website where it shares its views on good and poor practice in Consumer Duty Board reports to share some additional insights relevant to smaller firms.

It notes that most of the guidance it has previously given is relevant to smaller firms, because all firms should be able to monitor customer outcomes, take actions and implement a business strategy that aligns with the Duty to ensure the outcomes are good. But it does recognise that smaller firms have challenges, and is still considering what it will do as a result of its suggestion to pilot a sector-specific guide for the credit broking sector.

In the meantime, its new guidance for smaller firms highlights:

• the previously mentioned usefulness of a “critical friend” for firms that do not have dedicated compliance and audit functions, and where senior managers often hold multiple roles and the firms act without formal committees or a board;
• the limitations in the range of MI firms can get – so they may look to get information from external sources, trade bodies or from qualitative feedback – and they may sometimes use alternative and proportionate approaches to monitoring outcomes, because the board report still needs to evidence what has been done and how assessments are made;
• that external experts can help smaller firms, but equally the size of the firm can make it easier to pilot and test changes; and
• that while it may be disproportionate for smaller firms to have extensive policies and procedures dedicated to customers with specific needs, they still need to show they are embedding learnings into their business;
• that smaller firms may have difficulty in effectively monitoring third party relationships, but still need to show they have taken steps to communicate with parties higher up the distribution chain;
• that smaller firms can, for instance, address value through customer satisfaction surveys – the FCA gave the example of where a small firm found that customers who paid off loans early were still being charged a flat fee, so changed the structure to a pro-rata approach;
• smaller firms can use what is often a closer relationship with customers to show flexibility and to offer bespoke solutions;
• it is reasonable for smaller firms to take fewer actions, but that where they identify the need for change, it can be helpful to call on external help; and
• that it is important for smaller firms to consider what training they need to reflect how staff often have multiple roles.