The Financial Conduct Authority (FCA) has urged firms to up their game to make Consumer Duty monitoring proactive and outcomes-focused.
It also wants them to demonstrate how information drives action and test whether their interventions are effective.
FCA director of cross-cutting policy and strategy Charlotte Clare revealed the regulator’s review of how firms are approaching outcome monitoring has found some frameworks are not sufficiently focused on customer outcomes or the risks of harm.
In some instances firms have relied on high-level monitoring without a clear structure for identifying poor outcomes, understanding their causes or taking appropriate action, the regulator noted.
Monitoring frameworks
The regulator’s year-long review found some firms’ monitoring frameworks were not clearly focused on customer outcomes or the risks of harm.
While firms often described monitoring at a high level, they did not have a clear structure for identifying poor outcomes or understanding why they happened.
The FCA maintained these weaknesses limited firms’ ability to identify risks of harm and assess whether they were delivering good outcomes.
It added frameworks that are not aligned to customer journeys or clearly defined outcomes are less effective at identifying emerging issues or supporting timely action.
“This falls short of our expectation that firms use monitoring to identify and address poor outcomes in practice,” the regulator said.
“This can increase the risk that firms do not identify poor outcomes for customers, or address them promptly.”
Reactive indicators and data gaps
Furthermore, some firms were also found to have only a narrow or reactive set of indicators, making it harder to identify risks or assess customer outcomes.
And while they often collected a range of data, they did not consistently show how they used it to anticipate issues, track outcomes or assess changes they made.
In particular, the review found firms sometimes relied on lagging indicators, lacked clear thresholds or forward‑looking metrics, or did not have complete audit trails from identifying an issue through to action and outcome.
In some cases, inconsistencies or gaps in key data limited firms’ ability to reliably evidence customer outcomes.
“This falls short of our expectation for firms to use appropriate, reliable and actionable information to understand and improve customer outcomes,” the regulator said.
Inconsistent governance
Additionally, governance, oversight and cultural practices were found to be inconsistent across the firms reviewed.
In particular, it was not always clear how arrangements operated end-to-end, from identifying issues through to testing whether actions have improved outcomes.
Under the duty, the FCA pointed out that firms are expected to monitor outcomes, identify risks or instances of harm, understand their causes and take appropriate steps to address them.
Governing bodies are expected to review this information, provide appropriate challenges and agree actions where they identify risks to customers.
“If firms cannot clearly show how they identify, escalate and act on issues, it is hard for them to demonstrate that governance arrangements support good customer outcomes,” the regulator said.
Improved MI and governance
In her comments, Clare identified areas for improvement in how firms use and evidence management information (MI).
This is because the regulator has found evidence of some firms relying on reactive or poorly defined indicators, lacking clear audit trails, and not being able to demonstrate how data was used to identify emerging risks or assess customer outcomes.
Firms should be able to show a clear link between management information, decision-making and improvements in outcomes, she added.
This includes explaining why metrics and tolerances were chosen and whether actions have been tested and are effective in reducing customer harm or friction.
And while the FCA’s review has uncovered stronger board and senior management engagement compared with earlier reviews, Clare maintained that effective governance is about more than reviewing reports.
She added the regulator still wanted to see clearer evidence of challenge, discussion and decision-making.
Boards and senior leaders should be able to demonstrate how they have scrutinised outcomes, challenged assumptions and driven improvements where needed.
Effective monitoring
“One theme runs through the strongest examples we reviewed,” Clare said.
“They don’t just show what they monitored. They show what happened as a result.
“They can identify an issue, understand its cause, take action and then assess whether that action improved outcomes for customers.”
And as firms continue embedding the duty, Clare added they should consider whether their monitoring gives them a clear enough view of customer outcomes and whether it leads to timely, effective action.
“The firms making the strongest progress aren’t necessarily collecting more information,” she continued.
“They’re using it more effectively to understand their customers, identify harm earlier and drive meaningful improvements.
“And that’s what outcomes monitoring under the duty is intended to achieve,” she added.
