On 9 October 2024, the Financial Conduct Authority (FCA) published its review into payment firms’ implementation of the Consumer Duty (Duty) and how they have considered the specific payments sector risks set out in the Dear CEO letter of 21 February 2023 on implementing the Duty in payments firms.

The types of payment firms the FCA reviewed included payment service providers, e-money issuers, money remitters, merchant acquirers and open banking firms.

For the review, the FCA contacted 23 payments firms and asked them how they had implemented the Duty. As part of this the regulator asked for documents evidencing the approach as well as raising specific questions. The FCA analysed the responses and sent feedback to the firms involved.

Findings

The FCA’s findings from the review include:

  • Approach to implementation: The best firms tended to have strong governance and control frameworks which were used to scrutinise and challenge the firm’s implementation of the Duty and deliver any enhancements required. The firms who were best able to show compliance with the Duty tended to have a systematic implementation approach which started with clearly identifying the target market for their products and services and what good outcomes looked like for products and services, price and value, consumer understanding and consumer support. Many firms with a less effective approach to embedding the Duty applied their existing management information (MI) measures such as complaints and online product reviews, without building on them or linking them to the Duty outcomes.
  • Products and services – establishing the target market: The FCA saw target markets that were generally set relatively widely. It accepts that wide target markets can be appropriate in some circumstances but warns that an inappropriately wide target market risks the firm not identifying the true risk of their product or service delivering poor outcomes to consumers.

Products and services – agent oversight: The FCA has concerns that some firms have not adapted their monitoring processes to be able to demonstrate that their agents are complying with the Duty. A particular concern is ongoing monitoring and how it will confirm that principal firms and their agents have complied with the Duty’s requirements.

  • Fair value assessments: The FCA found that many fair value assessments fell short of its expectations particularly in the nature of the supporting analysis provided.
  • Consumer understanding: The FCA saw some good practice which included some firms testing their communications to make sure they were clear for consumers. In some firms, the FCA found it difficult to see how the approval process for customer communications had changed once the Duty came into force. It also found limited monitoring of consumer understanding after the communication was sent out.
  • Consumer support: The FCA identified instances where firms’ signposting of some customer support services was unclear. It also notes that a common source of complaints from customers of e-money firms relates to the lack of communications from firms when their account had been frozen. In these cases, firms are often prevented from responding to some customer enquiries due to financial crime requirements. Some firms had reviewed their customer support in this area making sure that, where they were not bound by financial crime constraints, communications about the reasons for account freezing were improved.
  • Governance: Generally, the FCA did not seemuch challenge to Duty implementation reflected in the board or senior governing committees’ minutes. It also did not see much evidence of firms’ Duty Champions bringing matters to the attention of boards or senior governing committees.
  • Management information: The FCA notes thatcreating a robust and sustainable MI suite was the biggest challenge for many firms. The challenges included identifying metrics that were directly relevant to the Duty’s outcomes, and which could be collected regularly.

Good and poor practices

The FCA also describes in further detail some of the good and poor practices that it found.

For instance, for consumer support good practice included:

  • The best firms were able to demonstrate that they had considered the support needs of their customers, including those who were vulnerable.
  • They provided support channels appropriate to the needs of their target consumers.
  • They had clear internal service level agreements (SLAs) on delivering support and addressed any shortfalls in a timely manner.
  • Their MI enabled likely issues with customer support to be identified using complaints and SLA data. Swift action was taken to investigate and fix issues.

Next steps

Payment firms should read the FCA’s review, consider how their firm compares and use it to address any shortfalls or gaps.

The FCA also reminds firms that their boards must, at least annually, review and approve an assessment of whether the firm is delivering good customer outcomes which are consistent with the Duty. Firms should expect the FCA to ask for the results of their monitoring and board reports. The regulator will use this information, as well as the information that it already gathers from firms and other data sources, to assess firms against the Duty and identify then tackle harmful practices.