Delivering better customer outcomes under the Consumer Duty

What happened?

A year on from firms first building and scrutinising their Consumer Duty implementation plans, the FCA’s Director of Cross Cutting Policy and Strategy, Nisha Arora, reminded regulated businesses that the Duty is not a “once and done” exercise. Firms are being asked to check that the changes identified during planning are now well underway, and whether those changes go far enough to achieve good customer outcomes.

Nisha Arora described the Consumer Duty as the “golden thread” that will run through all conversations firms have with the regulator, with the FCA testing how firms have implemented and embedded the Duty across their full business life cycle. From 31 July 2024, the Duty will also apply to closed products and services, meaning firms need to ensure their legacy book of business aligns with it too.

Why does it matter?

The Duty needs to be applied across the whole organisation, from board level through to front-line delivery, including product design, communications and customer support. Senior managers need to assess whether consumers are genuinely at the heart of the business, and whether the firm’s long-term strategy is consistent with delivering good customer outcomes.

The FCA’s supervisory and enforcement approach will be “proportionate to the harm, or risk of harm, to consumers”, prioritising the most serious breaches and acting swiftly, driven in large part by the management information firms provide.

Who is affected?

All regulated firms across wealth management, pensions, banking, lending, general insurance and protection, and motor finance are affected, particularly those with closed products or legacy books of business that will come into scope from July 2024.

Key risks

• Treating Consumer Duty implementation as a one-off exercise rather than an ongoing programme of assessment, testing and evidencing.
• Insufficient detective and preventative controls where risks to good outcomes have already been identified.
• Data and monitoring that does not give the board comfort that good customer outcomes are being achieved for the annual assessment.
• Legacy books of business that have not been reviewed ahead of closed products coming into scope on 31 July 2024.

Actions to take

1. Confirm that changes identified during the planning phase are underway and assess whether they go far enough to achieve good customer outcomes.
2. Identify the data needed to measure and monitor the delivery of outcomes, and ensure it is in a format that informs the board.
3. Review your approach to customer outcomes monitoring, fair value assessments and customer communications testing.
4. Prepare your legacy book of business for closed products and services coming into scope from 31 July 2024.
5. Consider an independent review or post-implementation audit of your Consumer Duty approach ahead of your annual assessment.

Wider implications

With the Consumer Duty now described by the regulator as a “golden thread” running through every supervisory conversation, firms should expect their annual assessment to form part of the evidence the FCA considers when judging their overall level of compliance.

Recommendations

Firms that are not comfortable with elements of their Duty stance should take rapid action, including appointing independent regulatory expertise to review their approach to embedding the Duty across the business.