On 20 February 2024, the Financial Conduct Authority (FCA) published guidance on what firms are doing well, and what could be improved, in relation to their implementation of the Consumer Duty.

The Consumer Duty came into force for open products and services on 31 July 2023 and while the FCA welcomes the improvements made by many firms to deliver better outcomes for their customers, it warns that some firms are ‘lagging behind’. It has therefore published this new webpage to:

  • Remind firms of the consumer outcomes required by the Duty.
  • Set out recent good practice to deliver these outcomes.
  • Highlight areas for improvement where firms have more to do.

Areas for improvement

Some of the areas for improvement are summarised below:

Culture, governance and monitoring

The FCA notes that in some firms the Duty is primarily driven by programme teams or risk and compliance colleagues, and is not discussed at Board level. It reminds firms to ensure that the focus on good customer outcomes is understood at all levels, in their strategies, leadership, and people policies. Furthermore some firms were found to be waiting to see if the FCA will intervene and address an issue, as opposed to tackling it themselves – the FCA flags that the Duty requires them to proactively identify and address issues and risks of harm. The FCA also found that some firms need better data and monitoring strategies, and flags that firms should think seriously about what information they need to really understand their customers’ outcomes and issues they may be facing.

Consumers in vulnerable circumstances

The Consumer Duty raises the standard of care for all consumers. However, the FCA has seen some firms fail to address identified weaknesses in processes to track vulnerable customers across multiple product sets and gaps in data and servicing capabilities. In the investment market, some firms have been found not to be prioritising identification of and support for vulnerable customers as they should be. The FCA also reminds firms that they should not be automatically assessing all consumers over a certain age as vulnerable, unnecessarily requesting evidence of consumers’ vulnerability where they identify themselves as such, or repeatedly requesting consumers to disclose their additional needs or personal circumstances when passed between teams.

Products and services

The FCA flags that some firms are not sharing information effectively across supply chains, which they should be doing to help them to quickly address issues and prevent consumer harm. Firms in a distribution chain should consider what information they need from each other, with the joint goal of delivering good outcomes for the customer. In addition, some firms were found not to be paying close enough attention to ensuring that their distribution strategies are driving good customer outcomes, and some are failing to note that they might have a role in a distribution chain, what that role is, and what it means for their responsibilities.

Price and value

The FCA outlines that some firms fail to show that products offer fair value to retail customers and/or are unable to justify what benefits they provide for the remuneration they receive. They also may add fees along the distribution chain that might mean the overall cost to the end consumer does not represent fair value. In some cases firms were seen charging customers for a service they are not benefiting from, or structuring investment products and services in a way that benefits firms rather than focusing on value for the customer. The FCA also notes a failure by some firms to share sufficient information to enable other firms in the distribution chain to properly assess value to the end retail customer or understand what the firm is doing where it considers a product does not provide fair value.

Consumer understanding

Practices highlighted by the FCA where improvement is required include firms undermining customers’ trust by pushing products or services that are too high-risk or complex for them; being unclear with customers about what charges apply and when (the FCA suggests providing worked examples of product and service costs); and approving financial promotions without making sufficient reference to the Consumer Duty. 

Consumer support

Finally, the FCA warns that it has seen firms not training staff well enough in terms of having complex conversations with customers so that they can support good consumer outcomes. It has also seen firms using business practices akin to ‘gamification’ on online trading applications platforms, which can cause consumer harm. The FCA also emphasises the importance of having sufficiently robust systems to protect and help consumers from loss of investments, savings or personal data due to fraud or cyber-attacks. 

Next steps

Firms are asked to consider the findings set out by the FCA and continue to make improvements in line with good practice, addressing any gaps that they identify. The FCA also notes that the findings may be useful for firms when considering what changes they need to make to meet the 31 July 2024 implementation deadline for closed products and services. It warns that it will take action where it identifies firms that are delivering poor customer outcomes.