Five FCA findings on ‘what good looks like’ for Consumer Duty Board reports

The FCA has published the findings of its review into firms’ approaches to the preparation of the first annual Consumer Duty Board report. The FCA highlights good practice and areas for improvement. 

As firms will soon start to prepare their report for 2025, in this post, we distil five key findings for firms to consider on ‘what good looks like’.

What good looks like:

• Show, don’t tell: In some cases, firms are not doing enough in their reports to help the Board (and FCA) understand what they are doing to meet the standards expected under the Consumer Duty. The FCA highlighted a lack of evidence around effective challenge from firms’ governing bodies on the content of reports, e.g. through appending Board meeting minutes. Plans and proposed improvements were often not accompanied by details of timescales, action owners or an indication of the data firms planned to use to evidence that the solutions they are pursuing actually work. The best reports went further than bold platitudes about steps firms were taking to meet their Consumer Duty obligations. They outlined the details of how the firm has assured itself that it is delivering good outcomes. Only then can Boards scrutinise effectively compliance with the Consumer Duty rules.

• ‘Tone from the top’ is still the catchphrase: The FCA is clear that a firm’s approach to the Consumer Duty is a matter of cultural importance. Commentary that emphasises a firm’s commitment to delivering good outcomes under the Consumer Duty and explains steps taken to build this into its business strategy is a good start, but it is not enough just to say your culture aligns with the Consumer Duty! Firms need to show it (see ‘show, don’t tell’ above). This could be by including details on how Consumer Duty outcomes are supported through staff training or remuneration/performance management practices. What the report doesn't mention is the (arguably equally important) ‘tone from the middle’. Statements from the exec mean nothing if your immediate line manager isn't equally committed to ensuring the firms delivers good outcomes for retail customers.

• Display the data: The FCA says that a fundamental aspect of a good report is good quality data. It is therefore not a surprise that one area of improvement suggested by the FCA is for firms to collate better quality data. The crux of this is that a firm needs to support its commentary and conclusions within the report with data of a sufficient quality that justifies the assertions it has made and gives adequate assurance to a Board. The FCA has been clear since implementation that data and monitoring are likely to be the last building blocks of the Duty to fall into place. However, its patience with firms who are not yet gathering sufficient, good quality data from a range of sources will only last so long.

• One size does not fit all customers: The FCA is critical of firms’ attempts to differentiate between customer types across the various sections of the Board reports. Some firms have not sufficiently delineated outcomes for vulnerable customers under each of the four specific outcomes. For example, effective board challenge on issues around vulnerable customers might look like a clear, well-documented series of questions by a Board member who does not think that current plans would adequately resolve an issue, with a subsequent allocation of an action to deal with this to a senior member of management. Conversely, failing to provide subsequent assurance to the Board that actions were taken to address issues faced by types of vulnerable customers, or fleeting references to vulnerability without reference to tangible accommodations does not signal good practice.

• Question marks remain (especially for smaller firms): The findings do not provide practical examples of the type of content you might find in a model Board report. Nor should it given the report is meant to be tailored to each firm’s business. However, much of the content the FCA provides here is generalised good and poor practice –  the substance is not far off that contained in the rules and guidance published before the first reports were due. Firms may be left wondering whether the FCA could have provided a more express articulation of ‘what good looks like’, perhaps by publishing anonymised examples or extracts from ‘good’ Board reports. For smaller firms, the FCA appears to acknowledge specific challenges that they face in preparing the report. Deploying relevant evidence and building the internal infrastructure to provide robust challenge to their approach to the Consumer Duty is significantly more difficult in smaller organisations. The FCA encourages smaller firms to appoint an external expert or ‘critical friend’ to advise (note: for ‘external expert’ or ‘critical friend’, see the Linklaters’ Consumer Duty team!).