The Financial Conduct Authority (FCA) has released its findings on the quality of Consumer Duty board reports pointing out the areas of good practice and areas for improvement – and is critical of reports that did not show enough involvement by the board.
The regulator warned that boards should not not simply “rubber stamp” reports, with the FCA stating that in some cases these board reports appeared to be produced almost solely by compliance teams or a dedicated Consumer Duty function.
The regulator explained that such rubber stamping risks the report missing the scrutiny and input of key stakeholders with subject matter expertise and risks business ownership of any identified issues.
It added that effective challenge is “essential” for the board to ensure that the report evidences the firm’s compliance with its obligations under the Duty and its findings were being published so that everyone can learn and improve.
“This report sets out the results of a targeted and thematic review that we carried out on the first annual Consumer Duty board reports from 180 firms,” it said.
“Under the Duty, a firm must prepare a report for its governing body setting out the results of its monitoring of consumer outcomes and any actions required as a result of the monitoring.”
It added: “We recognise that every firm’s board report will be different.
“The examples of good and poor practice are not intended to be prescriptive in terms of what board reports must contain – they are being shared to enable firms to decide for themselves how to improve the board oversight and board reporting processes in the next year of embedding the Consumer Duty.”
Reports from 180 firms
The FCA reviewed reports from 180 firms from across the retail banking, wholesale, insurance, payments, consumer investments and consumer finance sectors.
The sample included a range of small, medium and large firms with a range of business models, to help it understand their differing approaches.
This included larger firms with dedicated supervisory support, as well as 55 smaller firms – some of which have less than 10 employees – to provide the FCA with insights into the particular challenges faced by smaller firms.
Good reports
There were five key aspects of good reports, the FCA said. These included: a clear outcomes focus; good quality data; analysis of different customer types; clear processes for production of the report and a focus on culture throughout the firm.
The FCA said it was clear some reports had been produced over a sufficient time period to allow for relevant business areas, forums, and committees to be involved in the production of the report.
Other good reports included details of board challenge either in the report itself or associated minutes.
That could include submissions which showed requests from the board for further information to demonstrate compliance with the four outcomes.
The FCA said: “One firm included a tracker which showed requests made by the board throughout the preceding year.
“This tracker included the rationale on data thresholds and progress on actions designed to address poor outcomes.”
Other good reports spoke to the positive influence of a champion at the board level.
The FCA said: “Good reports evidenced the positive influence of the Consumer Duty board champion, who should be a key stakeholder, particularly for this first report. Some firms included statements from the board champion, detail on their responsibilities, and their involvement in reviewing changes made over the course of the year.”
Five areas for improvement
The report identified five key areas for improvement.
That included the need for better data. The FCA said: “Some firms did not have sufficient data quality to justify conclusions or to give governing bodies adequate assurance that firms are meeting their obligations under the Duty. Some also did not accompany their MI [management information] with adequate explanations to clearly illustrate it constitutes evidence of good outcomes for customers.
Another matter was having a comprehensive view across distribution chains.
The FCA said: “Some reports did not contain evidence that an appropriate amount and types of information have been shared between the firm and third parties across the distribution chain.”
A third matter related to analysis of different customer types. The FCA said: “Some firms did not evidence that adequate consideration had been given to outcomes for different groups of customers, including those with characteristics of vulnerability.”
The FCA also expressed concerns about the level of challenge from the board. The FCA said: “It was not always evident that there had been effective challenge from firms’ governing bodies on the content of the reports, for example, through the minutes of board meetings.”
And the final critique was on the detailing any effective action that was taken. The FCA said: “Some action plans and improvements were not accompanied by further details such as timescales, action owners, and clarity on the data that would be used to evidence good outcomes.”