On 11 December 2024, the FCA published its findings following a review into firms’ approaches to completing the first annual Consumer Duty board report. The FCA has also set out good practice and areas for improvement.

Under the Consumer Duty, a firm must prepare a report for its governing body setting out the results of its monitoring of consumer outcomes and any actions required as a result of the monitoring.

Background

The FCA’s review covered the first annual Consumer Duty board reports from 180 firms. This included larger firms with dedicated supervisory support, as well as 55 smaller firms (some of which had less than 10 employees) to provide the regulator with insights into the particular challenges faced by smaller firms.

Findings

Overall, the FCA found that the best reports were structured in a way that made them easy for boards to scrutinise the key elements that the rules and guidance suggest they should cover.

The FCA identified five key aspects of good reports and in summary these were:

  • Clear outcomes focus – Dedicated sections focussed on each of the 4 outcomes, detailing what good outcomes looked like for customers holding their products.
  • Good quality data – Commentary on good outcomes supported by good quality Management Information (MI) that backed up the firm’s conclusions.
  • Analysis of different customer types – Consideration of different groups of customers, including those with characteristics of vulnerability.
  • Clear processes for production of the report – Processes in place for producing reports for firms’ governing bodies to review and approve within the necessary timeframe.
  • A focus on culture throughout the firm – Commentary emphasising firms’ commitment to effectively implementing the Duty and the role of a positive culture in delivering good outcomes.

The FCA also identified five areas for improvement and in summary these were:

  • Better data quality – Some firms did not have sufficient data quality to justify conclusions or to give governing bodies adequate assurance that firms are meeting their obligations under the Consumer Duty. Some also did not accompany their MI with adequate explanations to clearly illustrate it constitutes evidence of good outcomes for customers.
  • Comprehensive view across distribution chains – Some reports did not contain evidence that an appropriate amount and types of information have been shared between the firm and third parties across the distribution chain.
  • Analysis of different customer types – Some firms did not evidence that adequate consideration had been given to outcomes for different groups of customers, including those with characteristics of vulnerability.
  • 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 the minutes of board meetings.
  • Taking effective action – Some action plans and improvements were not accompanied by further details such as timescales, action owners, and clarity on the data that would be used to evidence good outcomes.

 Smaller firms

The FCA has also set out suggestions for how smaller firms might meet the following requirements and is open to considering more targeted work where that would be beneficial:

  • Governance.
  • Monitoring outcomes.
  • Actions taken to comply with Consumer Duty obligations.
  • Future business strategy.