Consumer Duty: From frameworks to outcomes
The FCA has updated its Consumer Duty focus areas and taken alongside conversations we’ve had with senior FCA representatives in recent weeks, the message is clear: we are in a principles-based regulatory world, with the Consumer Duty at the heart of supervision.
The question for firms is moving beyond:
Do we have the right policies, processes and governance in place?
To:
Can we demonstrate good outcomes for customers, and show that we understand, monitor and act on the evidence?
The Consumer Duty is no longer simply another regulatory requirement to be mapped and evidenced. It is increasingly becoming the standard against which firms need to demonstrate what their data shows, how they know customers are receiving good outcomes, and what they are doing when the evidence suggests otherwise.
Three years into the regime, firms should no longer be asking whether they have implemented the Duty. The challenge now is whether they can demonstrate that it is working.
Show us what good looks like
The FCA continues to share examples of good and poor practice, and for a principles-based regime, this is important. The Consumer Duty was never intended to be a detailed checklist of rules for firms to follow. Instead, firms need to exercise judgement and be able to demonstrate why their approach delivers good outcomes.
The FCA's examples provide an increasingly useful benchmark for firms assessing their own arrangements.
The question firms should be asking themselves:
Would the FCA consider our approach an example of good practice?
If you’re not sure, now is the time to find out.
Use our Consumer Duty gap analyses to see where you stand:
Expect the FCA to act where it sees harm
Firms that can demonstrate they identify and manage their own risks proactively will be better placed in a principles-based supervisory environment.
Where a firm identifies potential harm itself, understands the issue, takes action and is open with the FCA about what it has found, it is demonstrating effective oversight of its own business.
That is a very different starting point from the FCA identifying shortcomings through the data and information it has requested, and then challenging the firm on issues it should have identified itself.
The message is clear, firms should be asking themselves now:
What risks could we be missing?
How quickly would we identify them?
What would we do if we found them?
Proactive risk management, early escalation and openness with the FCA need to be embedded in how firms operate, not something that happens once the regulator starts asking questions.
Expect more data requests and thematic work
The FCA needs better data from firms to understand what is working and where customers may be experiencing poor outcomes.
The latest update continues the regulator’s message that it will use thematic work, targeted questions and data requests to test how firms are delivering good outcomes.
This makes the quality of a firm’s data, MI and risk reporting increasingly important. These are not just inputs for regulatory returns or responses to FCA requests. They should be tools firms use to help understand their own business, identify emerging issues and make informed decisions.
The practical test is whether a firm can answer the FCA’s questions clearly and with evidence, while also demonstrating that it is asking itself the same questions and acting on what it finds.
In other words, firms should be using their data to find their own problems before the FCA finds them for them.
The FCA's continued focus on fair value, vulnerability and customer understanding reinforces the importance of firms being able to demonstrate this evidence.
Customer journeys are likely to come further into focus
The FCA has also signalled further work on customer journeys.
This is an area firms should be looking at now.
A customer journey review can provide a useful test of whether the Consumer Duty is genuinely embedded. It allows firms to look beyond individual controls and consider the experience as a whole:
What does the customer actually experience?
Where could they suffer harm or poor outcomes?
What data do we have to evidence the outcome?
And where problems are identified, what has the firm done about them?
Looking at the journey end-to-end often provides a different perspective from reviewing policies, procedures and controls in isolation.
Our Customer Journey Review is designed to help firms make exactly this assessment.
The sector focus is becoming more specific
The Consumer Duty remains a cross-sector priority, but the FCA continues to identify specific areas where it wants firms to improve outcomes and where it sees potential for harm.
Current areas of focus include:
Retail banking: fair value in SME business current accounts.
Consumer credit: customer understanding of the credit card market and financial promotions.
Insurance: claims handling.
Wealth: fair value and the treatment of customers in vulnerable circumstances.
These areas are useful indicators of the FCA's broader approach: looking at specific products and customer journeys and testing whether firms can demonstrate that customers are receiving good outcomes.
What should firms be doing now?
For firms, the practical questions are relatively simple.
If the FCA asked you today to demonstrate that your Consumer Duty is working:
Could you provide the data?
Could you explain the outcomes?
Could you show the Board's challenge?
Could you identify where things have not worked as intended?
And could you demonstrate what you have changed as a result?
If the answer to any of these questions is unclear, now is the time to address it.
At Avyse, we are helping firms assess whether their risk management and Consumer Duty arrangements are effective in practice, supported by the right evidence and capable of standing up to regulatory scrutiny.
That can mean a broad Consumer Duty gap analysis, or a targeted review of areas such as customer journeys, outcomes and MI, data quality, fair value, governance or vulnerability.
Three years in, the test is no longer whether Consumer Duty is on the agenda.
It is whether firms can demonstrate that it is changing how they identify risks, respond to issues and deliver better outcomes for customers.