We set out key findings from our review of payments firms’ implementation of the Consumer Duty.
We looked at how payments firms have implemented the Consumer Duty (the Duty), including how they considered its requirements, identified any gaps and addressed them. We also reviewed how far firms have considered the specific payments sector risks set out in our Dear CEO letter on implementing the Duty in Payments firms of 21 February 2023[1] and have acted to deliver good consumer outcomes.
The Duty came into force for open products and services on 31 July 2023 and for closed products and services on 31 July 2024. It is a cornerstone of the FCA’s 3-year strategy and a fundamental way in which we have set higher standards for firms.
1. Who this applies to
These findings will be of most interest to payments firms including:
- payment service providers
- e-money issuers
- money remitters
- merchant acquirers
- open banking firms
Other firms may also find them relevant.
2. What firms need to do
Firms should evaluate their products, services and processes against the Duty rules and guidance on an ongoing basis. They should make sure they are putting consumers at the heart of their business and are acting to deliver good outcomes for retail customers.
Firms should consider our findings and whether they apply to them. Firms that identify gaps in their compliance with our rules should act immediately, putting plans in place to address shortcomings. We set out our detailed findings and expectations below.
3. Why we did this work
In February 2023, we outlined to payments firms our expectations[2] on how they should implement the Duty. We asked them to review all products and services against the Duty’s higher standards.
With the Duty in force for open products, we wanted to understand firms' compliance with it. This includes how firms had approached their Duty related reviews, the information they used to inform their gap analyses, and the actions they had taken to deliver good outcomes for customers.
4. What we did
In January 2024, we asked 23 payments firms how they had implemented the Consumer Duty’s requirements. The firms were drawn from across the payments portfolio and included e-money issuers, merchant acquirers, money remitters and open banking firms. We asked for documents evidencing their approach as well as specific questions about how they had approached the Duty for a key product or service.
We analysed the responses and met with firms where our initial analysis indicated that firms were non-compliant, or we had been unable to conclude whether they were compliant. We then sent firms individual feedback of our findings.
5. What we found
Of the 23 firms, we rated just over half as satisfactory and did not view them as presenting a risk of significant poor consumer outcomes (although some minor actions may still have been needed). We are encouraged by the commitment of these firms to deliver good consumer outcomes in line with the Duty’s requirements.
However, just under half of the firms in our review had only partially implemented the Duty and required significant work to comply with it. These firms present either a moderate or higher risk of delivering poor consumer outcomes. We are concerned about these findings which, if representative of the sector, would indicate that a substantial minority of firms may not be compliant with the Duty. We will continue to work with these firms to ensure any harm is mitigated promptly.
Approach to implementation
The best firms considered that implementation of the Duty and improved customer outcomes aligned with their own long-term interests. They tended to have clearly articulated customer-centric purposes and understood what good outcomes and foreseeable harms looked like for their customers. They tended to have strong governance and control frameworks which they used to scrutinise and challenge the firm’s implementation of the Duty and deliver any enhancements required.
The firms who were best able to show compliance with the Duty tended to have a systematic implementation approach. This started with clearly identifying the target market for their products and services and what good outcomes looked like for products and services, price and value, consumer understanding and consumer support. They had a clear governance structure to monitor delivery of good consumer outcomes and to take action to address shortfalls in a timely manner. This included regular summary management information (MI) aligned to each of the 4 outcomes reported to their Boards. Often this MI included Red, Amber and Green (RAG) rated measures with conclusions drawn from the data. These conclusions clearly identified any shortfalls, the mitigating actions required and who was responsible for delivering these actions. Adopting this approach is helping firms to embed the Duty and take actions to deliver good consumer outcomes in a sustainable and efficient way.
Other firms did not appear to have recognised the higher standards the Duty requires of their business. Or they suggested that their payment products or services did not present the same risks to their customers as other FCA-regulated products like investment or pension products. They therefore considered that they did not need to make changes to comply with the Duty.
These firms did not show the same level of challenge in their implementation of the Duty and tended to rely more on pre-existing processes and controls. While products and services offered by firms in the payments sector may present different risks from those in other sectors, they still present significant inherent risks of poor consumer outcomes. We expect firms operating in the payments sector to have effective controls in place to make sure they consistently deliver good outcomes to consumers and effectively correct any shortfalls in a timely manner.
Firms with a less effective approach to embedding the Duty had often not clearly defined their target market or set out the good consumer outcomes they wanted to deliver. Many had also applied their existing MI measures such as complaints and online product reviews, without building on them or linking them to the Duty outcomes. This is likely to make it challenging for these firms to clearly identify where they are delivering good outcomes under the Duty or pinpoint any shortfalls.
Products and services: establishing the target market
We expect firms to specify the target market for their products to a sufficiently detailed level, taking account of the characteristics, risk profile, complexity and nature of the product.
We noted target markets were generally set relatively widely. Wide target markets can be appropriate in some circumstances. For example, with low-risk products designed to meet the needs of a broad range of consumers. However, an inappropriately wide target market risks firms not identifying the true risk of their product or service delivering poor outcomes to consumers. It also makes it more difficult to identify potential harm caused to customers if the products and services are not the right fit. High and medium-risk products are likely to require narrower well-defined target markets to reduce the risk of harm and avoid customers being sold products that do not match their risk appetite.
Products and services: agent oversight
Payments firms are responsible for the actions of their agents and distributors. We expect them to have appropriate systems and controls to oversee their activities effectively, including compliance with the Duty.
Where firms have delegated activities to their agents, we expect them to monitor that the Duty’s requirements are met.
Our review raised concerns that some firms had not adapted their monitoring processes to be able to demonstrate that their agents were complying with the Duty. Firms tended to have specified some form of onboarding and training which they supplied to their agents. However, it was less clear what ongoing monitoring was in place to confirm that principal firms and their agents complied with processes set out in this training and associated policies and met the Duty’s requirements.
For example, in some instances, firms specified that communications and support services were to be delivered to retail customers by their agents. However, it was unclear what ongoing testing firms did to ensure that agents delivered prescribed disclosures, other customer communications and support services, in practice.
Good practice
The best firms had clear and consistent intermediary oversight arrangements enabling them to identify shortfalls in delivering good consumer outcomes.
These included:
- Clear governance structure to monitor delivery of good consumer outcomes, via intermediaries, and taking action to address shortfalls in a timely manner.
- Clear consumer outcomes that principal firms expect their intermediaries to deliver.
- Providing their agents with the information they needed to comply with the Duty.
- Regular monitoring of agents’ compliance with their obligations under the Duty.
- Regular summary Board MI on intermediary oversight, with RAG rated measures identifying any shortfalls, mitigating actions and action owners.
Poor practice needing improvement
Some firms’ intermediary oversight arrangements lacked clarity and consistency, leading to a risk of poor consumer outcomes. For example, consumer confusion about which firm in the distribution chain to contact if they have a problem.
The shortfalls we found in some firms included:
- Asserting that they were regularly and systematically assessing delivery of good consumer outcomes via intermediaries but being unable to demonstrate this.
- Having high level MI measuring delivery of good consumer outcomes but being unable to drill down to delivery of good outcomes via key intermediaries.
- Taking action against intermediaries falling short of their Consumer Duty related standards but being unable to demonstrate that the firm was appropriately remediating consumers.
- Being unable to demonstrate whether they had provided their intermediaries with the information they needed to ensure compliance with the Duty.
Fair value assessments
The Duty requires firms to ensure products provide fair value to retail customers. Firms must undertake fair value assessments to show if the price a consumer pays for a product or service is reasonable compared to the overall benefits they can expect to receive.
In assessing fair value, we expect firms to consider at least the nature of the product including the benefits that will be provided, any limitations that are part of the product or service and the expected total price customers will pay, including all applicable fees.
Many fair value assessments fell short of our expectations particularly in the nature of the supporting analysis provided.
Some firms argued that as challengers to established payment providers they had to offer a competitive price and therefore provided fair value.
Other firms’ analysis was limited to benchmarking their price or prices against those of competitor firms. Whilst benchmarking prices are an additional factor firms may consider, it is not a substitute for the broader consideration of costs and benefits.
We also noted that firms offering products with a menu of charges depending on product use did not always consider how these charges affected different groups of consumers based on what they knew about how customers use their products.
Finally, many firms listed the elements that made up the price and value picture but did not take the last step and clearly assess whether fair value was provided or give a clear rationale for this assessment.
Good practice
- The best firms clearly set out whether they considered they were delivering fair value to their customers for each of their products and services and provided a clear supporting rationale.
- These firms considered the differing groups of customers who used a product or service and how the costs and benefits fell on those groups.
- Where they identified shortfalls in the delivery of fair value, they set out the remediating actions they were taking.
- They considered a range of relevant factors to form a view as to whether price was reasonable in relation to the benefits received.
Poor practice needing improvement
- Some firms did not clearly conclude whether they considered they were delivering fair value and/or provided insufficient explanation for their conclusion.
- Some firms limited their value assessment to price comparisons and did not sufficiently consider non-financial benefits such as the level of consumer support provided.
Consumer understanding
We want firms to support their customers to enable them to make informed decisions about financial products and services. The Duty requires a firm to support retail customers’ understanding so that its communications meet its customers’ needs.
We saw examples of good communications to retail customers which were tailored to the customer, the complexity of the product and the communication channel used. Good practice included some firms testing their communications to make sure they were clear for consumers. It also included monitoring the impact the communication had, to identify whether they are supporting customers to make effective decisions and deliver good customer outcomes.
In some firms, we found it difficult to see much change in their approval processes for customer communications from those that existed before the Duty came into force. We did not identify a significant amount of pre-testing of consumer communications. Some firms said they did test communications. Examples include pre-testing among target consumers or using groups of staff with similar characteristics to the target market.
We found that monitoring of consumer understanding after the communication was sent out was limited. Firms used a variety of data sources for their consumer understanding MI. One firm regularly emailed surveys to its customers to test their understanding of online and other customer communications. Some firms used the number and nature of complaints as a measure of customer understanding. Other firms pointed to email open rates – but this does not indicate understanding.
We expect firms to make sure they have an effective way of testing communications. This should include regularly assessing whether their communications support effective customer decision-making and identifying and dealing with any shortfalls.
Good practice
- The best firms had clear arrangements in place to ensure their customers received the support they required to make informed decisions in relation to their products and services.
- Such firms' procedures tended to go beyond first and second line reviews of text and included some form of testing consumer understanding of their communications.
- Testing arrangements included testing consumer understanding both before and after communications were sent out. Examples included:
- Pre-testing communications directly with consumers or using standardised reading ease tests. These consider factors such as average length of sentences and average number of syllables per word.
- Post-testing communications after issuing them using online customer surveys.
- Some firms tested communications using A/B testing. This involves testing particular wording that is different in 2 otherwise similar versions of a communication to determine which is easier to understand.
- Firms demonstrating an effective approach to testing consumer understanding provided comprehensive MI that included a range of data from regular reviews to provide management with assurance that customer understanding was appropriately supported.
Poor practice needing improvement
- Other firms were unable to provide assurance that they were robustly assessing whether they were supporting their customers to make informed decisions in relation to their products and services.
- Such firms relied more heavily on existing first and second line review procedures and conducted limited or no pre-testing or post testing of communications.
- Some firms’ customer MI appeared to be limited to distant proxy measures of customer understanding such as email open rates or net promoter score measures.
Consumer support
Firms should provide support that meets their customers’ needs. Firms with best practice were able to clearly demonstrate how they are helping consumers act in their own interests and realise the benefits of the products and services.
We identified some firms where signposting of some customer support services was unclear, risking customers not being able to access these services. In some firms the volume of complaints suggested shortfalls in delivering support that met customers’ needs.
We expect firms to provide readily accessible and effective support channels appropriate to their target market consumers and others who hold their products and services covered under the Duty. We also expect firms to clearly signpost these services to consumers via channels appropriate to their customers’ needs.
If firms identify customer support issues from available MI, including complaint information, we expect them to take prompt action to correct them.
A common source of complaints from customers of e-money firms relates to the lack of communications from firms when their account had been frozen. In these cases, firms are often prevented from responding to some customer enquiries due to financial crime requirements. Some firms had reviewed their customer support in this area making sure that, where they were not bound by financial crime constraints, communications about the reasons for account freezing were improved.
Good practice
- The best firms were able to demonstrate that they had considered the support needs of their customers, including those who were vulnerable.
- They provided support channels appropriate to the needs of their target consumers.
- They had clear internal service level agreements (SLAs) on delivering support and addressed any shortfalls in a timely manner.
- Their MI enabled likely issues with customer support to be identified using complaints and SLA data. Swift action was taken to investigate and fix issues.
Poor practice needing improvement
- Some firms were unable to demonstrate that they had sufficiently considered the needs of their customers, including those who may be vulnerable, and provide appropriate support channels to them.
- Did not clearly point consumers to key support channels.
- Were unable to demonstrate good consumer support outcomes on complaints handling, exacerbating poor delivery of consumer support overall.
Governance
The Duty should be reflected in a firm’s governance, strategies, people policies and incentives and these should support good customer outcomes. Firms should be able to demonstrate that their management and board appropriately considers Duty matters and can exercise their functions under the Duty.
We sought to establish what information was given to the firm’s Board or senior governing committee about Duty implementation and the degree of challenge over it. In most cases, it was clear that the Board was given information in the form of documented Board packs. But generally, we did not see much challenge to Duty implementation reflected in the Board or senior governing committees’ minutes. Similarly, we did not see much evidence of firms’ Consumer Duty Champions bringing matters concerning the Duty to the attention of firms’ Boards or senior governing committees.
Some firms changed their people policies because of the Duty. For example, introducing additional training for staff on identifying vulnerable consumers and ensuring they adopted a flexible approach to serving them. However, there was less evidence that firms had challenged whether remuneration and incentive policies could lead to foreseeable harm.
Good practice
- The best firms demonstrated that their boards regularly considered and challenged the extent to which they were delivering good consumer outcomes and were remediating shortfalls.
- This included remediating shortfalls in delivering good consumer outcomes via their agents and distributors.
- Such firms tended to have more detailed minutes providing evidence of the nature of the discussion, challenge by the Board and Consumer Duty Champion and the remediating action required.
- Concise MI packs were provided to the Board that allowed proper consideration of Duty matters.
Poor practice needing improvement
- Some firms were unable to clearly demonstrate that they had considered the Duty in their governance arrangements. We asked firms to provide their Consumer Duty governance structure to us. In some cases, the documents we received initially included no mention of the Duty and we had to ask firms to make sure they had considered the Duty in their governance arrangements.
- Some Board minutes provided no, or very limited, evidence of challenge regarding the firm’s implementation of the Duty.
- Some Board minutes noted the Board’s satisfaction with progress in embedding the Duty but failed to address key shortfalls, such as late delivery of key actions raised in other documents we received.
Management Information
A key part of the Duty is that firms assess, test, understand and evidence customer outcomes. Without this, it is impossible for firms to know if they are meeting the Duty’s requirements, and good MI is central to that. We expect firms to have a comprehensive suite of MI relevant to their business and to act where it suggests good outcomes are at risk.
Firms which could clearly identify if they were delivering good consumer outcomes and potential shortfalls had metrics that directly evidenced Duty outcomes. These data sources were clearly aligned to each of the Duty outcomes and had triggers which would require investigations. Owners were assigned to identified issues and were tasked with reporting to management on resolving these issues.
However, creating a robust and sustainable MI suite was the biggest challenge for many firms. The challenges included identifying metrics that were directly relevant to the Duty outcomes, and which could be collected regularly. Other firms had identified too many metrics to be usefully tracked regularly over time. Some firms had collected relevant data, but it was not clear that it was being used for Duty purposes or not drawn together with other relevant metrics. Some firms had identified metrics relevant to the Duty but did not link these to the Duty’s cross-cutting rules or outcomes lenses (products and services, price and value, consumer understanding, and consumer support).
Good practice
The best firms set out their Consumer Duty Board MI in a way that assisted their Board in identifying good consumer outcomes and shortfalls requiring remediation. For example, by:
- Setting out the good outcomes they wish to deliver under each of the outcome lenses and linking the MI measures to them.
- Including traffic lighted red, amber and green statistical thresholds or similar on each measure to identify shortfalls requiring investigation.
- Clearly setting out remediating actions with action owners, target completion dates and progress updates.
- Assessing whether the remediating actions had been effective in raising standards.
Poor practice needing improvement
- Some firms had made minimal changes to their pre-Consumer Duty Board MI. In some cases, this meant that it was insufficient to identify shortfalls in delivering poor Consumer Duty outcomes.
- Some firms did not clearly link their Board MI to Consumer Duty outcomes or include statistical thresholds or clear qualitative assessments on whether they were delivering good outcomes. This is likely to make it challenging for them to identify poor consumer outcomes.
6. Next steps
What firms should do
We designed the Duty and its outcomes-based approach to create an environment which supports healthy competition and innovation based on high standards. It is vital that firms have adequately considered the requirements of the Duty and have fully implemented these in a way that is appropriate to their business. This will help to ensure they deliver good outcomes to their customers and can readily identify and remediate any shortfalls before they lead to significant consumer harm.
While firms can be proportionate in their implementation, it should cover all relevant areas of their business even when there is a small number of retail customers. Our work indicates that many firms need to take additional action to fully embed the Duty, and they should do so without delay.
Firms should read this review, consider how their firm compares, and use it to address any shortfalls or gaps and raise standards. It is better for firms to resolve issues now than wait for us to identify and intervene on issues and remediate any harm later.
We also remind firms that their Boards must, at least annually, review and approve an assessment of whether the firm is delivering good customer outcomes which are consistent with the Duty. Firms should expect us to ask for the results of their monitoring and Board reports. We will use this information, as well as the information that we already gather from firms and other data sources, to assess them against the Duty and identify then tackle harmful practices.
What we will do
We will continue to monitor how firms are meeting the Duty’s standards and take appropriate supervisory actions where necessary.
We have given our sample firms individual feedback. Where we have identified implementation gaps, we expect firms to deal with these promptly. Where we identified unmitigated or potential harm, we will consider our full range of regulatory tools and intervene, where appropriate, to prevent further harm. Where we find serious non-compliance, we may take action including restricting firms’ business.
If we find significant shortfalls in firms’ implementation of the Duty and/or risks of poor consumer outcomes resulting from this, we will require firms to implement mitigation programmes.
We will also continue to explore how firms are meeting our expectations under the Duty across multiple sectors on specific Duty themes and issues. This is in addition to our sector-focused work.
We believe there is real opportunity to learn from different industry areas, and we want to support good practice across financial services.