Read the findings of our review into firms’ approaches to completing the first annual Consumer Duty Board report.
Summary
The Consumer Duty[1] sets high and clear standards of protection for retail customers across financial services. The Duty came into force on 31 July 2023, and on 31 July 2024 for closed products and services.
To support effective embedding and implementation of the Duty, firms have asked us to more regularly publish thematic best practice and areas for improvement. This report is being published so that everyone can learn and improve.
This report sets out the results of a targeted and thematic review that we carried out on the first annual Consumer Duty board reports from 180 firms. Under the Duty, a firm must prepare a report for its governing body setting out the results of its monitoring of consumer outcomes and any actions required as a result of the monitoring.
We recognise that every firm’s Board report will be different. The examples of good and poor practice below are not intended to be prescriptive in terms of what board reports must contain – they are being shared to enable firms to decide for themselves how to improve the board oversight and board reporting processes in the next year of embedding the Consumer Duty.
This report does not repeat the detailed standards expected under the Duty – albeit where appropriate we have referenced existing rules and Guidance documents for ease of reference.
Overall Findings
The best reports were structured in a way that made them easy for their boards to scrutinise the key elements that the rules and guidance suggest they should cover.
Smaller firms
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:
Our methodolgy
We reviewed reports from 180 firms from across the retail banking, wholesale, insurance, payments, consumer investments and consumer finance sectors. Our sample included a range of small, medium and large firms with a range of business models, to help us understand their differing approaches. This included larger firms with dedicated supervisory support, as well as 55 smaller firms (some of which have less than 10 employees) to provide us with insights into the particular challenges faced by smaller firms.
As well as the reports themselves, we requested any supplementary information provided to the board (or equivalent governing body) to enable them to conduct their assessment, along with minutes where applicable.
Whilst the structure of a board report is for each firm to decide, we wanted to find a consistent way of looking at the content in the reports. We have examined the content of the reports based on the expectations laid out in our rules and guidance, rating them in the following areas: governance and oversight, culture and people, products and services, price and value, consumer understanding, consumer support, vulnerability, third parties (where applicable), data strategies, closed products and services (where applicable), action plan, and a rating for the overall assessment.
This broad sample has enabled us to draw out a wide range of good and poor practices that should be useful to all firms, regardless of sector and size, in producing their future reports. We have, however, drawn out points that are specific to smaller firms where relevant.
What we found
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.
Report Governance
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[2], 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.
Areas for improvement
Business input into production of the report
In some cases, reports appeared to be produced almost solely by Compliance teams or a dedicated Consumer Duty function. This risks the report missing the scrutiny and input of key stakeholders with subject matter expertise and risks business ownership of any identified issues.
Key Areas for Change
Reports should be produced with the involvement of, and input from, relevant business areas, forums and committees. This ensures the board is not the sole layer of approval and that other stakeholders with subject matter expertise have been able to provide scrutiny. The report as a whole should bring together relevant data and insights on retail market activities to assess whether customers are receiving good outcomes.
Effective challenge is essential for the board to ensure that the report evidences the firm’s compliance with its obligations under the Duty. The board should not be seen simply as a ‘rubber stamp’ for the report.
Smaller Firms
We are aware that governance considerations differ considerably between firms depending on scale. The smallest firms will lack dedicated compliance and audit functions as well as boards, so observations above regarding e.g. 2LOD and 3LOD may not be applicable. We said during our Consumer Duty webinar in December 2023 that smaller firms might consider asking a ‘critical friend’ with sufficient understanding of the Duty to provide impartial feedback on a firm’s approach and report.