Consumer Duty Board Reports: good practice and areas for improvement

We want all smaller firms to feel confident in delivering the Duty. The Consumer Duty rules and guidance should be interpreted in light of what is reasonable in the circumstances, taking into account the size, activities and available resources of a firm.

We found areas of good practice from firms of all sizes, including those with fewer than 10 employees. As such, much of the good practice and areas for improvement cited here applies to firms of all sizes. All firms should be able to monitor customer outcomes, take actions and implement a business strategy that aligns with the Duty to ensure those outcomes are good.

However, we know that smaller firms have different challenges. We have set out suggestions for how smaller firms might meet our requirements below and are open to considering more targeted work where that would be beneficial. We will continue to engage with our Smaller Business Practitioner Panel and other smaller firm stakeholders.

To summarise:

We have set out the below sections under four headings: Report Governance; Monitoring and Outcomes; Actions taken to comply with Duty obligations; Future Business Strategy. These are structured in line with the requirements set out in our rules and guidance and each section begins with a relevant extract that summarises our expectations.

Throughout, we accompany good practice and areas for improvement with examples from the reports reviewed in our sample. Firms should note that these are illustrative only and are intended to facilitate understanding of the broader points. How firms implement these findings in their own reports will depend on their business and circumstances.

Requirements

The Consumer Duty rules (PRIN 2A.8.3-5R) require firms to prepare a report for its governing body setting out the results of its monitoring under PRIN 2A.9 and any actions required as a result of the monitoring. Firms are also required to take certain procedural governance steps. At least annually, the governing body of a firm must:

• review and approve the report
• confirm whether it is satisfied that the firm is complying with its obligations under the Duty
• assess whether the firm’s future business strategy is consistent with its obligations under the Duty
• agree any required actions when approving the report

It should be clear that these steps have been followed for each report. 

Good Practice

Clear processes for production of the report

It was clear some reports had been produced over a sufficient time period to allow for relevant business areas, forums, and committees to be involved in the production of the report. Positive evidence included:

• Clear input of key business areas into the analysis including departmental updates.
• Evidence of the full involvement of 2nd line of defence (2LOD) and 3rd line of defence (3LOD), including independent assessments from both lines, giving the firm’s governing body assurance about the content and conclusions of the report.

Challenge from the board

Some reports included details of board challenge either in the report itself or associated minutes. For example:

• Submissions showed requests from the board for further information to demonstrate compliance with the 4 outcomes. Examples included more information on target markets (Products and Services) and detail on a firm’s user research testing (Consumer Understanding).
• Challenge to provide a clear plan to address issues involving customers with characteristics of vulnerability that a board member did not believe would be adequately resolved under current plans. It was clear that an action to deal with this challenge was allocated to a senior member of the management team.

One firm included a tracker which showed requests made by the board throughout the preceding year. This tracker included the rationale on data thresholds and progress on actions designed to address poor outcomes.

In FG22/5, we said that we expect firms to have a champion at board (or equivalent governing body) level. Good reports evidenced the positive influence of the Consumer Duty Board Champion, who should be a key stakeholder, particularly for this first report. Some firms included statements from the Board Champion, detail on their responsibilities, and their involvement in reviewing changes made over the course of the year. 

Requirements

The assessment should include the results of monitoring to assess:

• whether products and services are delivering the expected outcomes in line with the Duty
• any evidence of poor outcomes, including whether any group of customers is receiving worse outcomes compared to another group
• an evaluation of the impact and root cause

Good Practice

Good quality data

Some firms effectively used a range of quantitative and qualitative data from internal and external sources, including comparator and benchmarking data in their reports, covering each of the 4 outcomes. Good reports accompanied this with clear commentary, drawing conclusions based on the data and explaining risks identified across the business.

For example:

• We saw firms include data on complaints as well as the source and root cause analysis of any upward or downward trends. Some reports were able to link trends to events such as technical incidents, changes to complaint handling processes, and changes to the sales strategy. 
• Similar practice was seen with call abandonment rate data that was used often used by firms. One firm identified a monthly increase was due to reduced resource at a time of fluctuating demand and linked this to an action to review its resource modelling.
• Where appropriate, reports included consideration of Financial Ombudsman Service (FOS) decisions and feedback when assessing foreseeable harm and making improvements.

Some reports detailed what constituted a good outcome for customers, providing opportunity for review by the governing body. One firm broke down good outcomes in their report by providing a series of positive statements from the customer point of view, alongside the MI that was being used for monitoring and any planned actions.

Some reports included evidence of poor outcomes customers were experiencing such as products which provided poor value compared to those of competitors and indicators of risk that products may not work as intended in future. A key aspect of the Duty is that this be accompanied by associated actions to address the issues. More detail on such actions is included in the next section.

Some reports clearly showed how the firm had identified gaps in the firm’s data and set out clear improvement plans to better monitor customer outcomes. We understand that firms will continue to grow and develop their data strategies over time. The best reports showed that firms have a clear grip on what their data does and doesn’t tell them about customer outcomes, together with a plan to address any material gaps.

Requirements

The assessment should include: overview of actions taken to address any risks or issues.

These reports are expected to promote discussion and accountability around embedding the Duty. Suitable evidence and MI are a key part of this process and the examples given here should support firms in the production of their next report. Given that we expect the Duty to have now been fully implemented, the next report may well include less information on actions related to initial implementation.

Good Practice

Good quality data

Some reports explained changes that have been made to the firm’s data collection to improve its monitoring abilities and to mitigate the risk of undetected issues. For example, 1 firm explained how it had added QR codes to its paper communications to increase the amount of customer feedback received.

Taking effective action

Reports often provided specific illustrative examples to assure their boards that action had been taken to address risks and issues. Good reports provided an evaluation of the effectiveness of these actions. This applies to firms in all sectors and of all sizes.

For example:

• We saw reports where firms gave examples of assessments which concluded that a product or service was not meeting customer needs and were therefore removed from sale. Some also included examples of changes made to the customer journey or products themselves to maximise value for the customer.
• Firms illustrated they had taken action to address Price & Value concerns by either reducing prices or increasing benefits to customers. Examples included an insurance firm making an optional add-on standard in line with competitors and a retail bank increasing interest rates on some savings accounts. A wealth management firm removed minimum fees from certain product lines and reduced those charged on others for portfolios below a certain amount.

Requirements

The assessment should include: how the firm’s future business strategy is consistent with acting to deliver good outcomes under the Duty.

Good Practice

Strategic Change

We saw examples of firms incorporating the Duty into their business  strategy and purpose, including details of amendments made to build in the Duty outcomes. Good reports demonstrated how the strategy would ensure customers received good outcomes in the future.

A focus on culture throughout the firm

Reports often referenced how firms had undertaken people initiatives to ensure the Consumer Duty was embedded in the culture of the firm.

For example:

• Reports provided data on the number or proportion of staff that had completed training on Duty-related outcomes, including vulnerability-specific training.
• Reports described how firms had set a positive ‘tone from the top’, demonstrating that senior leaders were committed to the Duty and have promoted its importance, including commentary from business heads discussing the changes made in their area.
• Some reports recognised the importance of ensuring remuneration practices and performance management are consistent with the Duty, explaining how associated requirements had been fed into executive scorecards. One retail bank stated that every employee now had an objective related to consumer outcomes.

Governance and Analysis of different customer types 

Many firms outlined new governance structures that were in place to ensure ongoing compliance with the Duty. This included various forums and committees aligned to the 4 outcomes. Several of these new bodies were also committed to monitoring outcomes for customers with characteristics of vulnerability. 

Taking effective action 

Some reports contained plans with actions that are specific and measurable, have a clear owner/accountable executive and a delivery plan which is tracked through appropriate governance channels.