Welcome FCA guidance on monitoring under the consumer duty

The FCA has published its findings from a review of larger insurance firms’ approaches to outcomes monitoring under the consumer duty. Identifying, collecting, and acting upon real time data about outcomes for retail customers is a central tenet of the Duty. It is also something that, for most firms, remains a work in progress. 

The FCA has taken a pragmatic approach to compliance here, recognising that most firms are on a ‘journey’ and that data and monitoring are the areas requiring most ongoing work post initial implementation. This has not, however, prevented them undertaking this early study of insurers’ activity. In December 2023 the FCA requested the most recent board and/ or committee reporting from 20 larger insurance firms, asking for information about how they monitor, assess, and test the outcomes customers are receiving, along with actions firms had taken after identifying poor outcomes. It then assessed the submissions against the monitoring requirements set out in PRIN 2A.9 of its Handbook, as well as the guidance given to firms in Chapter 11 of FG22/5: Final non-Handbook Guidance for firms on the Consumer Duty.

Two points stand out from the FCA’s findings:

• Effective monitoring begins with a clear identification of what a ‘good outcome’ looks for consumers of a particular product, followed by an assessment of what data and MI is needed to track this; and 
• firms must act (and track the delivery of those actions) on the information they receive.

Overall, responses varied. Some firms showed good progress, demonstrating the following approach:

• Clearly defined customer outcomes.       
• A suite of metrics chosen to monitor those outcomes.     
• Identification of poor or potentially poor outcomes.          
• Investigation and, where needed, actions taken.  
• Evaluation of customer outcomes using targeted metrics.

Other have much more work to do. Concerns included:

• Some approaches were overly focused on processes being completed rather than on what outcomes they delivered. Completing a product review does not automatically mean that those who access it will experience good outcomes. How customers respond to a communication is as important as whether it is sent.
• Some board or committee reporting contained limited insight into actual customer outcomes. This was often because of:
  • metrics/data not being comprehensive/sufficiently varied. The FCA cited an overreliance on complaints data as a particular concern. Not only does this place too much responsibility on customers, but it is also less likely to give a full picture of potential issues with a particular product. The FCA also found an over-reliance on a single type of data (eg net promoter scores) in some cases.
  • data which lacked analysis and explanation (with no sense of the suggested follow up actions even where poor outcomes were identified).
  • thresholds/standards in place which did not appear to be appropriately set and/or communicated. For example, some firms set service level agreements below the level likely to meet reasonable customer expectations.  
• Few firms were able to provide clear evidence of where the monitoring of outcomes had directly led to proactive action being taken to improve outcomes (where necessary).

The FCA makes the point that poor monitoring won’t always lead to poor outcomes, but effective monitoring is essential if firms are to identify and remediate harm. It reminded firms that it is more likely to act if it sees evidence of customer harm that could have been prevented or reduced by more effective monitoring.

Broader lessons from the detail

• Infrastructure counts: The FCA cites with approval frameworks that contained clearly articulated tolerance levels (with governance to ensure that they were set correctly) and integrated second line scrutiny of first line owners of consumer duty risk. We are seeing firms take different approaches to locating the ownership of consumer duty risk. No one approach seems yet to be dominating The FCA cites this structure as generating evidence of good levels of challenge – that isn’t to say that other approaches couldn’t yield the same results, but its worth thinking about why this format was deemed so effective. 
• Get granular (I know we keep saying this, but it really matters): The FCA is concerned that some firms are presenting data in a way that is unlikely to facilitate scrutiny and challenge. For example, firm-wide assessment of end-to-end customer journeys may suggest that they are meeting relevant targets, but specific elements of those journeys could still be materially outside agreed tolerance levels. Many is the enforcement case in which process-focused MI hid poor outcomes. Customer’s experience of the process matters, as much of not more than the fact that the relevant process was followed.  
• Get granular, part two: Firms must monitor outcomes for different groups of customers and be able to identify where one group is experiencing materially worse outcomes than others. Specific monitoring of outcomes for customers with characteristics of vulnerability is essential, but there is also insight to be gained from thinking creatively here. Rather than treating vulnerability as homogenous, or even cutting your monitoring by type of disability or illness, crucial insight can also be gained by looking at outcomes for customers exhibiting different types of behaviours. For a bank that might be customers who use their overdraft every month; for a fund it might be holders of a stocks and shares ISA who don’t regularly invest. All firms could consider the outcomes for those less able (for any reason) to challenge or complain. Outlier groups come in many forms and monitoring their experiences may give firms a unique insight into how their products operate in practice.
• Follow up is essential: Where monitoring reveals poor outcomes, a clear plan for remediation needs to be submitted and the progress of that remediation tracked. Once completed, further monitoring should be undertaken to provide evidence that the relevant changes are making a difference. It is never enough to just identify a problem, the FCA needs to see clear evidence that firms have acted to fix relevant concerns. 

In terms of next steps, the FCA expects all insurers, insurance intermediaries and outsourced service providers operating within the insurance sector to consider its findings, including the good and poor practice observations. Firms that identify gaps in their compliance with the FCA’s rules should act immediately, putting robust plans in place to address any shortcomings.

Given the FCA expects there to be lessons for all sectors in its feedback on consumer duty reviews, these findings should be required reading for any in-scope firm.