FCA Consumer Duty Publications Summary (December 2024)

The has been at the forefront of implementing the Consumer Duty, a significant shift in regulatory focus aimed at ensuring better outcomes for consumers across the financial services sector. With the framework now fully in force for open and closed products, the FCA has released a series of key publications to guide firms in their journey of embedding these principles.

These publications highlight focus areas, identify good and poor practices, and provide actionable insights for firms of all sizes.

We will explore the three recent publications, their themes, findings, and implications. By understanding the FCA’s expectations and recommendations, firms can refine their approaches, address shortcomings, and ultimately create a more consumer-centric operational model. Each publication is examined in detail to provide clarity and practical guidance for firms navigating the complexities of Consumer Duty.

Focus Areas for Consumer Duty Implementation (Published 09/12/2024)

In this publication The Financial Conduct Authority (FCA) has outlined its main priorities for embedding the Consumer Duty framework, which has been in effect for open products since 31 July 2023 and for closed products since 31 July 2024. This new regulatory approach aims to improve consumer outcomes by focusing on systemic issues and raising industry standards. For the remainder of 2024/25, the FCA’s efforts include both thematic and sector-specific initiatives to support firms in achieving compliance while simplifying regulatory requirements.

A key requirement under the Consumer Duty is that firms assess and demonstrate how their products and services deliver good outcomes for customers. The FCA has set clear expectations for firms to monitor customer outcomes across their lifecycle, ensuring that vulnerable customers receive fair treatment and that products represent good value. This includes robust fair value assessments and transparency about pricing structures. For retail banking, for example, this includes addressing accessibility challenges such as bereavement support and power of attorney processes.

Areas of improvement highlighted by the FCA include the need for more sophisticated data analysis to ensure fair pricing and value for consumers. The FCA also plans to tackle sector-specific issues, such as the clarity of pricing in digital payments and consumer understanding in investments and pensions. To facilitate these improvements, the FCA has committed to providing additional guidance and simplifying regulatory requirements where appropriate.

The FCA’s focus on systemic improvements and sector-specific interventions underscores the importance of data-driven, customer-centric strategies to raise industry standards while fostering innovation.

Complaints and Root Cause Analysis (Published 11/12/2024)

The FCA’s thematic review of complaints management and root cause analysis (RCA) across 40 firms revealed significant insights into best practices and areas for improvement. This review aimed to understand how firms use complaints data to identify and address systemic issues under the Consumer Duty framework.

Requirements: Firms are required to maintain robust management information (MI) systems to monitor complaints data and identify potential harm to customers. Effective RCA processes must identify systemic issues, address their root causes, and measure the impact of corrective actions. Firms must also ensure that governance structures support these processes, with clear accountability for driving improvements based on RCA insights.

Findings: While some firms demonstrated good practices, such as developing dashboards that integrated complaint volumes with quality assurance metrics and vulnerability assessments, others struggled with insufficiently granular data. Many firms failed to analyse complaints to identify trends among vulnerable customers or to follow through on RCA findings with effective action plans. For example, while some firms updated their processes, they often did not measure the impact of these changes on customer outcomes.

The FCA highlighted governance as a critical area of improvement, noting that complaints data is often discussed in operational silos without sufficient escalation to decision-makers. Firms must ensure that MI is actionable, enabling governance bodies to track systemic issues and oversee the effectiveness of RCA interventions. Smaller firms, despite resource constraints, are encouraged to use external data sources such as Financial Ombudsman Service decisions to enhance their RCA processes.

Effective complaints management and RCA are essential for identifying and addressing systemic issues. Firms must ensure that their processes go beyond identifying problems to include robust mechanisms for monitoring and measuring the impact of their actions.

Consumer Duty Board Reports (Published 11/12/2024)

The FCA’s assessment of 180 firms’ first Consumer Duty Board reports revealed a wide variance in the quality of reporting and adherence to governance standards. These reports are critical tools for monitoring compliance with Consumer Duty obligations and ensuring that firms’ strategies align with delivering good consumer outcomes.

Requirements: Firms must prepare a report for their governing bodies at least annually, detailing their monitoring activities under the Consumer Duty framework. These reports must include evaluations of customer outcomes, identification of risks, and actions taken to address any deficiencies. The FCA requires firms to provide evidence of governance processes, including Board-level oversight, and to ensure that the reports enable effective decision-making.

Findings: High-quality Board reports demonstrated robust data analysis, clear accountability, and actionable insights. For example, one firm’s report included data on customer feedback, complaints, and product value assessments, accompanied by targeted action plans. Another firm tracked outcomes for vulnerable customers, providing detailed insights into how specific interventions improved their experiences.

Conversely, many firms failed to provide sufficient evidence to justify their conclusions or support effective decision-making. Some reports lacked clarity on governance structures, while others treated vulnerable customers as a generic category without addressing specific needs. Additionally, action plans often lacked ownership and timelines, raising concerns about their effectiveness.

The FCA emphasised the importance of embedding Consumer Duty principles into firms’ cultures and strategies. Smaller firms, while facing resource constraints, are expected to adopt proportionate practices, such as simplified data strategies and external benchmarks, to meet these requirements.

Board reports should serve as a cornerstone for governance under the Consumer Duty, providing actionable insights and fostering accountability at all levels. Effective reporting requires a combination of robust data, strategic oversight, and targeted action plans.

The FCA’s recent publications underscore the importance of embedding Consumer Duty principles across all aspects of business operations. From complaints management to Board reporting, firms must adopt data-driven, customer-centric approaches to ensure compliance and deliver better consumer outcomes. By addressing identified gaps and leveraging best practices, firms can not only meet regulatory expectations but also enhance their competitiveness in the financial services sector.