Consumer Duty Board reporting
A poll of 656 financial services professionals published last week shows that only 1% of firms have completed and signed off their annual Consumer Duty Board report. According to the poll, 16% of respondents have not even started or allocated ownership for drafting the report. With the deadline looming on 31 July 2024, it is imperative for firms to accelerate their efforts to avoid non-compliance with the Duty requirements and sanctions by the FCA.
Understanding the Consumer Duty Board report
One of the fundamental requirements of the Consumer Duty is the annual obligation for a firm’s board to review and approve a report on its compliance with the Duty. This report must confirm that the firm is complying with its Consumer Duty obligations and that its business strategy aligns with Consumer Duty principles. The FCA is expected to scrutinise these reports and may request the underlying evidence to support the conclusions and actions taken by the firms.
A major risk with board reporting is that a well-crafted report may sit unused for a year, only to be revisited just before the deadline.
To avoid this, robust governance must ensure continuous monitoring and progress tracking throughout the year. Regular updates through internal governance committees are crucial, making compliance a continuous process rather than an annual task.
Essential elements of the Consumer Duty Board report
The Consumer Duty Board report should encompass three key elements:
Evidence of Customer outcomes monitoring: this includes the results of monitoring customer outcomes, particularly identifying any poor outcomes or discrepancies among different customer groups. The report should evaluate the root causes of these findings
Remediation actions: firms must detail the actions taken to address identified risks, breaches, or areas for improvement with the Duty. This might include changes to product features, pricing structures, distribution arrangements, and customer support processes.
Business strategy (re)-alignment: firms need to assess whether their current and future business strategies comply with the Duty under Principle 12 and PRIN 2A. This involves embedding Consumer Duty compliance in all aspects of business decision-making, including partnerships and third-party engagements.
Key questions for effective reporting
To assist in the preparation and review of the Consumer Duty report, we propose a set of questions for Board members and key staff involved in the implementation of the Duty.
These questions cover crucial areas such as defining good outcomes, ensuring data quality, comparing customer outcomes, and analysing the impact of the business strategy.
Monitoring results
What constitutes ‘good’ outcomes, and how are these supported by evidence and governance?
How granular is the reporting, and does it cover specific customer groups adequately?
Are there any data gaps, and what plans are in place to address them?
How is the firm using sales and marketing data to monitor customer outcomes?
Actions to address risks and improve outcomes
What changes have been implemented post-Duty implementation?
How has the firm addressed identified risks or poor outcomes?
What root cause analyses have been conducted, and what actions have been taken to remediate issues?
Business strategy Impact
Is the firm’s business strategy aligned with delivering good customer outcomes?
What conduct risks are associated with the firm’s strategic and revenue growth plans?
How will the firm monitor and ensure that poor outcomes are not experienced by specific customer groups?
Recommended actions to design the Board report
Determine roles and responsibilities: clearly define the roles of different lines of defense and ensure clearly appointed risk owners for the relevant metrics areas
Identify and test data: ensure the right management information and data support the report. Prioritise data build and outcomes testing where necessary. Outline areas that require more operational resources to deliver on the metrics
Develop a report plan: align all stakeholders on the plan for building the report, from the report skeleton to quality control and testing. Leverage existing management information and demonstrate its relevance for the Consumer Duty compliance monitoring
With the deadline fast approaching, firms must gather the necessary data and take proactive steps to prepare their Board Consumer Duty report. This is not merely a compliance exercise but a critical component of ensuring better customer outcomes in line with the pro-active implementation approach with the Duty expected by the FCA. Investing time and resources now will pay off by reducing supervisory challenges and providing a clear roadmap for continued compliance.
The Consumer Duty Board report is the beginning of a continuous journey toward better Consumer Duty compliance. Going forward, the FCA will use these reports to identify best practices and outliers, making it crucial for firms to get their reporting right from the outset.
Consumer Duty Board Report Template
Writing your first annual Consumer Duty Board report can be challenging. Our Consumer Duty template helps create a comprehensive report underpinned by a robust methodology.
If you would like a copy of our Consumer Duty Board Report template, please get in touch.