The Consumer Duty has helped improve standards in financial services but more progress is needed and some areas of board monitoring are "weak", a senior FCA figure has said.
In a review of Year 2 Consumer Duty board reports, Jonathan Pearson, FCA head of consumer policy, said that while firms have “improved” more progress is needed in many areas.
Mr Pearson said that some firms have "struggled" to identify a proportionate approach to weaknesses and the FCA plans to consult on changes to rules and guidance relating to distribution chains this year. It will also publish best practice examples of how firms are monitoring outcomes under the Duty.
As part of the Consumer Duty requirements, boards must report annually on what their monitoring efforts have found about customer outcomes and what actions they have taken or will take as a result.
The Consumer Duty was introduced by the FCA as a key driver to improve standards in financial advice and financial services, with firms required to provide fair outcomes for consumers at all stages of the “customer journey.”
Consumer Duty Board reports are used to provide evidence about outcomes and are designed to fuel further improvements.
Mr Pearson said that boards can hold people to account and act quickly to make sure firms are not causing harm or offering poor value.
In a new blog report for the FCA, Mr Pearson said: “We’ve seen this (board reports) lead firms to design better products, communicate more clearly and support their customers better. This means they fix issues sooner, and customers are more likely to get fair value and the help they need.
He said a review of Year 2 reports had found evidence of good news but also found that some areas “need more attention.”
He said: “The good news: the Duty is making a difference. Firms are continuing to mature in how they use data and insights to understand their customers' experiences. Boards are more actively shaping and scrutinising this work.
"Still, some areas need more attention to ensure reporting is genuinely outcome‑focused."
Among the improvements seen during Year 2:
• Stronger governance and clearer board oversight
• Better action plans and ownership with firms increasingly setting out comprehensive action plans
• Broader and more insightful data, including trend analysis, root cause assessments and comparisons across customer groups
• More evidence of firms improving how they identify and monitor outcomes for vulnerable customers, including through better segmentation
Key areas for improvement are:
• Quality and depth of analysis was variable
• Firms need to clearly link data to customer outcomes, with clear evidence required from the data of good outcomes being provided
• Firms need to draw conclusions, identify emerging risks and be prepared to challenge their own practices where the data suggests that customers may not be getting good outcomes
• Better monitoring of outcomes delivered by third parties because monitoring of outcomes in distribution chains was often, “weak, especially where firms rely on intermediaries or outsourcing partners”
• Firms should act proportionately to take responsibility for the outcomes their products deliver, regardless of who interacts with the customer
• Some firms have struggled to identify a proportionate approach and the FCA plans to consult on changes to rules and guidance relating to distribution chains this year, as well as publish best practice examples of how firms are monitoring outcomes under the Duty.
• Evidence meaningful board challenge of business leaders
• Deepen assessment of consumer understanding and support
Mr Pearson said that some reports still focused more heavily on products, services and value than on customer understanding and support even though these are core outcomes under the Duty. Firms should be able to evidence how they test communications, assess consumer comprehension and respond where consumer behaviours indicate misunderstanding or friction
He added: “Both first and second year reports highlighted strong examples of effective practice across the market, including from smaller firms. This shows that it’s possible for all firms to monitor customer outcomes meaningfully and align their strategies with the Duty.
“The improvements we’ve seen show that firms continue to move in the right direction. We want them to draw on these insights as they approach their 3rd year submissions. Firms should continue strengthening their outcome monitoring, governance and distribution oversight so that the Duty continues to deliver good outcomes for consumers.”
• FCA best practice guidance on improving consumer understanding. FCA examples of good and poor practice, including providing extra insights to help smaller firms apply the Duty.