Consumer Duty Board Report

The 31 July 2024 deadline for firms to prepare and approve their first Consumer Duty board reports is fast approaching. Firms which are subject to the Consumer Duty but which have yet to complete this process should turn their attention to it now.

What is consumer duty?

The Consumer Duty is a flagship initiative for the Financial Conduct Authority (FCA). Introduced on 31 July 2023 and set out in Principle 12, the Consumer Duty requires firms to “act to deliver good outcomes for retail customers”. The FCA has been clear that the Consumer Duty does not simply restate rules that existed before; the Consumer Duty sets higher standards than those which previously applied. The FCA wants firms to up their game.

The FCA has been clear that this is not a “once and done” exercise. The Consumer Duty should be an ongoing process that leads to continuous improvement.

Consumer duty board report content

A firm to which the Consumer Duty applies must prepare a report (Report) for its “governing body” (usually its board of directors) on the outcomes being received by retail customers. The Report must set out:

• the results of the firm’s Consumer Duty monitoring programme; and
• details of actions that are required as a result of this monitoring.

At least annually, the firm’s board must:

• review and approve a detailed assessment of the outcomes being received by retail customers (which should be set out in the Report);
• confirm whether it is satisfied that the firm is complying with its obligations under the Consumer Duty (and related FCA rules and guidance); and
• assess whether the firm’s future business strategy is consistent with its obligations under the Consumer Duty (and related FCA rules and guidance).

When it approves the Report, the board must also agree:

• the details of any actions that must to carried out to address any identified matter that might lead to retail customers not receiving good outcomes;
• any steps that must be taken to address identified instances of retail customers not having received good outcomes; and
• any amendments to the firm’s business strategy that are required to ensure that this strategy remains consistent with the firm’s obligations under the Consumer Duty (and the related FCA rules and guidance). 

Consumer duty board report format

The FCA has not prescribed the format in which the Report should be set out. Rather the FCA considers that firms themselves are best-placed to decide how to communicate the necessary information to their boards.

The FCA has recognised that the level of detail and complexity that may be expected of a Report will vary from firm to firm. In light of this, the FCA has published guidance stating that the requirement to produce the Report is intended to apply “proportionately”. Firms may therefore wish to take advice as to how best to present the information in their particular case.

Questions to consider

The FCA has provided examples of the type of questions that firms can expect the FCA to ask regarding governance arrangements in respect of the Consumer Duty.  The FCA says that questions such as these should guide the way in which the board discusses the Consumer Duty. The FCA has grouped these questions under two headings: (1) “Culture and Governance” and (2) “Customer outcomes”. We set out a selection of the relevant questions below.

Culture and Governance

• “How does the organisation’s culture support the delivery of good outcomes for customers?”
• “How does the organisation ensure that individuals throughout the organisation – including those in control and support functions – understand their role in delivering the Consumer Duty?”
• “Is the Consumer Duty being considered in all relevant discussions such as strategy and remuneration? Are customers outcomes a key lens for Risk and Internal Audit?”

Customer outcomes

• “Has the firm identified the key risks to its ability to deliver good outcomes to customers and put appropriate mitigants in place?”
• “What data does the firm have about its customers and how they use its products? Are there any gaps in the data? What steps is the firm taking to address them?”
• “Are certain groups of consumers getting different outcomes, and if so why?” 

Broader context

As indicated above, part of the Report’s function is to set out the results of the firm’s Consumer Duty monitoring programme. Given this, the Report cannot be seen in isolation. Rather, the Report should be a result of a monitoring process that is already underway. Firms may wish to use the process of preparing the Report as a way of assessing the effectiveness of their monitoring programmes.

Next steps

Firms which are subject to the Consumer Duty but which have yet to finalise their Reports should prioritise this exercise now.

If you would like advice regarding the structure and/or content of the report then please contact Richard Ellis or William Garner.

Our expertise

We provide financial services regulatory advice to a wide range of businesses. Our client list includes: commercial banks, non-bank lenders, investment funds, private funds, investment managers, family offices, advisers, intermediaries, insurance companies, wholesale trading firms and markets entities.

In addition to advising on regulatory issues we can also assist with the regulatory elements of  transactional, contentious and strategic matters.