FCA Consumer Duty Outcomes Annual Board Report: A Comprehensive Guide


INSIGHT
Published
May 31st '24
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The Consumer Duty, introduced by the Financial Conduct Authority (FCA), mandates firms in the financial services sector to place customers’ needs at the forefront of their operations. This duty necessitates the creation of a robust product governance framework, encompassing product approvals, product reviews, value assessments, and outcomes monitoring, all aligned with cross-cutting rules and two final outcomes. Central to this duty is the requirement for firms to produce an annual board report, ensuring adherence to the regulatory expectations outlined in PRIN 2a.8. This article provides a structured approach to crafting a thorough and compliant Consumer Duty board report.

 

FCA Consumer Duty outcomes: regulatory requirements

 

Understanding PRIN 2a.8

PRIN 2a.8 outlines the governance, culture, and oversight responsibilities of firms under the Consumer Duty. Key requirements include:

 

– annual reporting: firms must produce a report at least annually.
– outcomes monitoring: the report must detail the results of outcomes monitoring.
– senior management review: senior managers must review customer outcomes and confirm compliance with the duty.
– strategic alignment: the governing body must assess whether the firm’s business strategy aligns with the duty and produces good outcomes.
– remedial action: necessary actions to improve customer outcomes or address deficiencies must be agreed upon.

 

Key takeaways

The governing body report, or board report, should provide senior managers with the opportunity to review and confirm the firm’s compliance with the Consumer Duty. This involves a thorough evaluation of the firm’s business strategy and its effectiveness in delivering good customer outcomes.

 

Current practices

 

Conducting a mini-audit

The core of your board report should be an assessment of current practices, akin to a mini-audit. This section allows the board to grasp the status of the duty within the firm, identifying areas of non-compliance and trends in outcomes monitoring. An extract from a board report template might include:

 

– product approvals: evaluating the effectiveness of product approval processes.
– outcomes monitoring: reviewing data points such as customer usage, cancellations, switching, defaults/arrears, feedback, complaints, and vulnerable customer reviews.
– value testing: ensuring value assessments include diverse customer groups and distribution channels.

 

Improvement actions

Each finding should have a designated space to record actions taken to enhance customer outcomes and compliance. Summarise these actions in earlier sections and detail them in a specific findings section, accompanied by an executive summary.

 

Outcomes

 

Embedding consumer outcomes in report sections

Integrate consumer outcomes within each section of the main body of the report. When reviewing approaches to the four outcomes, focus on the outcomes actually received by customers rather than just technical compliance. Use a variety of data points to illustrate this:

 

– customer use
– cancellation rates
– switching behaviour
– default/arrears (if applicable)
– customer feedback
– complaints
– vulnerable customer reviews

 

Testing value across customer groups

Ensure value testing encompasses different customer characteristics and distribution channels. Identify if different groups of customers receive different value from the firm’s offerings.

 

Culture

 

Importance of organisational culture

The culture section is arguably the most critical part of the report, sparking essential discussions among the board. Begin with a statement from the Consumer Duty champion, outlining their view on customer outcomes and the duty’s integration within the firm. Suggested topics for the champion’s statement include:

 

– understanding of the duty: clarity on how the duty operates across multiple firms within the same group.
– definition of good outcomes: has this definition been successfully disseminated throughout the company?
– business values and goals: are these aligned with the duty?
– leadership and governance: actions taken by the leadership team to promote the duty and its benefits.

 

Assessing business strategy alignment

This section should review the business’s values, goals, and strategy to ensure alignment with the duty. Findings from the main body of the report will inform this evaluation.

 

Leadership, people, and governance

 

Promoting the duty through management and governance

Include a review of actions taken by the leadership team to promote the duty, its intended outcomes, and benefits to the organisation. This encompasses people management and governance structures.

 

By following these guidelines, your board report will not only comply with regulatory expectations but also drive meaningful discussions and decisions that enhance consumer outcomes and align with the overarching principles of the Consumer Duty.

 

To visually represent the process of creating a Consumer Duty board report, we recommend the following diagram:

 

 

Board report: covering these main headings

 

Regulatory requirements PRIN 2a.8
Annual reporting
Outcomes monitoring
Senior management review
Strategic alignment
Remedial action

Current practices
Mini-audit
Product approvals
Outcomes monitoring
Value testing
Consumer outcomes
Embedding in report sections
Testing value
Culture
Consumer Duty champion statement
Business strategy alignment
Leadership, people, and governance
Promoting the Duty

 

By adhering to this structured approach, your firm can ensure compliance with the FCA’s Consumer Duty, fostering a consumer-centric culture and improving overall business outcomes.

 

To help you with Consumer Duty – Contact Us today.

 

LS Consultancy is a Affiliate Member of the Consumer Duty Alliance, which is an independent, ‘not-for-profit’ professional body. It aims to support the personal finance sector in the adoption and implementation of the FCA’s Consumer Duty requirements through the alliance of like-minded individuals and firms.

 

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