The FCA recently published two significant reviews on Consumer Duty: one examining board reports and the other addressing complaints and root-cause analysis.
Both released on the 11th of December 2024, these findings provide valuable guidance for firms embedding the Duty across their operations. This feedback is particularly timely as the Duty now applies to both open and closed products.
This article summarises the FCA’s findings, focusing on good practices, areas for improvement, and practical recommendations for UK regulated firms under the scope of the Duty.
Consumer Duty Board Reports
Let’s first take a look at the FCA’s Consumer Duty Board Reports: Good Practice and Areas for Improvement.
To recap, a board report is a document that firms are required to produce annually under the Consumer Duty rules (as set out in PRIN 2A of the FCA Handbook). The report should summarise the results of the firm’s monitoring activities, evaluate whether the firm is delivering good customer outcomes across its products and services, and outline any actions needed to address risks or improve compliance.
Good Practices
The FCA identified several features of effective board reports. High-performing firms demonstrated a clear focus on customer outcomes, supported by comprehensive management information (MI) reports that analysed outcomes for different customer groups, including those with vulnerabilities, were particularly strong.
Involvement from key business areas, beyond compliance teams, ensured that the insights presented were well-rounded. And finally, strong governance processes, including active board challenge and oversight, influence and participation of the consumer duty board champion, were also crucial.
Areas for Improvement
Some firms struggled to provide granular data or define what constituted “good outcomes”.
Without clear evidence to back up conclusions, board reports often fail to deliver actionable insights. In some cases, reports were treated as tick-box exercises, and offered limited value as a result.
On top of this, the FCA found that there was a lack of engagement with third-party providers. Many firms did not demonstrate how they monitored outcomes across distribution chains or ensured good outcomes for customers using outsourced services (an important finding as the FCA announced new rules for critical third parties at the end of last year).
Complaints and Root-Cause Analysis
Let’s now turn to the FCA’s Complaints and Root-Cause Analysis: Good Practice and Areas for Improvement.
A reminder, root cause analysis (RCA) involves identifying the underlying reasons for complaints and systemic issues to prevent their recurrence and improve customer outcomes.
Under the Consumer Duty, firms must have robust processes in place to analyse complaints data, monitor trends, and take effective action to address harm, as required by DISP App 3.4 and PRIN 2A.9.9R of the FCA Handbook.
Good Practices
The FCA’s December report highlighted the importance of using complaints data to identify systemic issues and improve customer outcomes.
Firms with effective practices developed dashboards that linked complaints data to Consumer Duty outcomes, helping them perform deeper analysis of trends and potential harms.
Clear action plans with defined ownership, timelines, and measurable results were hallmarks of firms that successfully translated root-cause analysis (RCA) into meaningful changes. Some firms have also monitored the effectiveness of these changes to ensure they have delivered the desired outcomes.
Areas for Improvement
Many firms failed to act on RCA’s insights effectively.
The FCA noted that some firms lacked the granular data needed to identify disparities in outcomes for diverse customer groups, particularly those with vulnerabilities.
The FCA also observed that monitoring systems were often insufficient to evaluate the impact of changes. Without this oversight, firms risked implementing actions that did not fully address the underlying issues.
A Note For Smaller Firms
The FCA recognises that smaller firms face unique challenges in meeting these expectations, such as limited resources, limited complaint data, and access to comprehensive MI.
But they’re not off the hook. Smaller firms are encouraged to use external sources like Financial Ombudsman Service (FOS) data and industry insights to enhance their understanding of customer outcomes. Getting external help by getting informal feedback from trusted people to look at board reports can also help smaller companies find problems and improve their compliance approach.
The Last Word
In both reports, the FCA found that firms saw the Customer Duty reporting obligations as check-box exercises — mere formalities rather than reports that can meaningfully impact their decision-making.
However, by adopting good practices, addressing gaps, and embedding a strong Consumer Duty culture, the FCA makes it clear that they believe firms can meet regulatory expectations and improve their operational resilience.
If your firm requires support implementing these changes, or reviewing current board reports, contact API Compliance Ltd. using the form below.
