Consumer Duty: when is ‘just good enough’ not good enough?

Combining good industry practice and lessons learned, as the one-year anniversary of the FCA’s Consumer Duty approaches.

The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

Financial services firms are continuing to work hard on embedding the requirements of the Consumer Duty. The regulator is monitoring closely, and has noted good progress in some aspects, as well as areas that require improvement.

This summer also marks the deadline for the first annual Consumer Duty board reports

These are important documents to get right—and will provide a useful reference point for subsequent iterations. 

They will need to be robust to scrutiny from the FCA, and provide a realistic assessment to the board or governing body to prove that the firm is embedding the requirements of the Duty.

This will include highlighting what lessons have been learned, and what steps are being taken to drive good outcomes.

Consumer Duty—how do we evidence good consumer outcomes? 

These documents should explain how the company culture and governance aligns itself with the Duty. But the bulk of the report should cover evidence of how the firm monitors good consumer outcomes, including the 4 Outcomes as set out by the Duty.

Two aspects, in particular, continue to be key areas of focus, and will feature heavily in the annual reports.

  • Fair value assessments (FVA). Firms will be expected to have developed a robust fair value framework, and then to have implemented it in practice. The FCA will expect firms to then identify and action the appropriate steps to address any issues raised by the FVA. (See our previous blog post on how to assess fair value)
  • Review of communications and customer understanding. There is now an expectation that firms will design communication that engages effectively with their customers. Many resources and examples exist that can help firms achieve this in their own contexts. Good practice here involves:
    • testing customer understanding (e.g. through post-sales surveys); 
    • conducting audits of online choice architecture (e.g. reviews of dark patterns/sludges); 
    • drawing on insights from behavioural economics.

Next steps—is our evidence base sufficiently developed to monitor outcomes? 

The annual report is just one opportunity for firms to set out the evidence on consumer outcomes, and the lessons that have been learned through the first year of the Duty.

However, the FCA have been clear that the Duty is ‘not once and done’.

Good industry practice is being established in relation to fair value assessments and effective communications, as well as progress on embedding the Duty more broadly. UK Finance and Oxera are now collaborating together in an upcoming, practical three-hour workshop—back by popular demand—to examine, these points in detail. 

Please come join us to work through the practical ways to implement robust fair value assessments, effective communications, and the toolkit required to continue embedding the Duty.

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