Preparing the Consumer Duty Board Report

Who this blog is for:

Board members, senior executives, Consumer Duty champions, and those leading the implementation, monitoring, and reporting of the Duty.

At a glance

• Firms subject to the Duty should already be gathering the data needed to prepare their first Duty Board report. Time is of the essence, as the full extent of data gaps and other issues will only emerge as firms start to compile their first report.
• The report should include three key elements: evidence of customer outcome monitoring, resulting actions (including improvements), and changes to the business strategy.
• In this article we include a question bank for Board members and key personnel involved in Duty compliance to inform their preparation, review, and challenge of the Duty Board report. These key questions touch on the definition of good outcomes, granularity of reporting, data quality, completeness and interpretation, comparison of outcomes between distinct groups of customers, root cause analysis of poor outcomes and actions taken to address issues/areas for improvement.
• The Duty Board report will require intense collaboration by different stakeholders across the organisation. Firms need to ensure that they set out a clear allocation of roles and responsibilities, robust communication channels and a plan of action to produce the report by July 2024.

Introduction

One of the cornerstones of the Duty is the annual requirement for the Board to review and approve the firm’s report on retail customer outcomes, confirm the firm is complying with its Duty obligations, and that its business strategy is consistent with Duty principles (the ‘report’).

The first report is due before 31 July 2024. It is crucial that risk owners and Board members consider the evidence and data required for its preparation. Firms should expect the FCA to scrutinise the report and, in some cases, request the underlying evidence to support conclusions and actions being taken.

In this article, we outline the essential elements of the report as required by the FCA’s rules and guidance, suggest key questions for Board members to ask, and outline core stakeholders and their roles in preparing the report.

The report: key content

Under the Duty rules¹ firms need to prepare a report for their Board setting out the results and actions of monitoring retail customer outcomes. The Board is then required to:

• review and approve the firm’s report on customer outcomes;
• confirm it is satisfied that the firm is complying with the Duty²; and
• assess whether the firm’s future business strategy complies with the Duty obligations.

Boards approving the firm’s report on customer outcomes should also agree on the actions to address weaknesses and areas of non-compliance with the Duty and any changes to the firm’s business strategy necessary to ensure continued compliance with the Duty.

A sufficiently detailed and well evidenced report should allow the Board to confirm it is satisfied that the firm is in compliance with the Duty.

The above can be reflected in three core pillars of the report:

A. Monitoring results: the report should include overall monitoring results, including those that indicate poor outcomes and/or any groups of customers that are receiving worse outcomes compared to other groups, together with an evaluation of the impact and root cause of those findings.

B. Actions taken to address risks or breaches or improve outcomes: firms need to act where they identify poor outcomes or where better outcomes could be achieved by specific customer groups. Examples include: products taken off the market, changes to product features, pricing structures or fees, changes to distribution arrangements and distributor on-boarding controls and practices, changes to customer journeys and support provision or communications.

C. Business strategy impact: firms need to assess whether their current and future business strategy align with the Duty and, if they do not, make the necessary changes. Examples of business strategy impact include: changes to sales strategies such as a reduction in reliance on low/poor value products in future, embedding Duty compliance in the process of deciding who to partner with and the level of scrutiny over third parties, and robust consideration of the impact of cost-cutting exercises on customer support levels.

Reviewing the report: question bank

This question bank is intended to aid those preparing, challenging and reviewing the report. This includes Board members, risk committee members, Consumer Duty steering group members, the Duty champion and other executives conducting deep dives into the firm’s Duty implementation and compliance.

We have categorised the questions by theme across the three content areas of the report and indicate both key (in bold) and supplemental questions for each area.

Key stakeholders preparing the report: recommended actions

Whilst the Board will ultimately sign off the report, the first line risk owners will be responsible for its development with inputs/oversight from second and third line.

Below we outline some actions and recommendations when planning and completing the report with a focus on the different roles of those involved in preparing the report.

• Determine roles and responsibilities including the role of the second and third lines of defence (LoD): strong communication between LoDs and early determination of the best way to involve risk and internal audit are likely to make the reporting process smoother and provide the FCA with more robust evidence of compliance with the Duty. Some firms are considering dry-runs to ensure there is enough time to respond to Board challenge and reflect improvements in the Board report.
• Identify the MI and data that will support the report and consider the need for outcomes testing: first line risk owners have been very busy putting in place the overall Duty framework. Firms need to assess if they have the right MI and should prioritise data build where necessary. Outcomes testing can assist firms in obtaining key evidence to support their assessment of compliance. It is essential that the report focuses on products and processes that have the most material impact on customer outcomes. This requires a firm to take a tailored approach to building the report, starting with identifying the data and MI that best evidence good outcomes and ultimately allow the firm to understand whether it is compliant with the Duty.
• Build effective communications between data analysts, Duty Programme teams and accountable executives: the report will need to sum up and evidence the collective effort of several teams across the organisation. It is essential that communications between different teams are timely and effective to ensure the report is coherent and succeeds in telling the story of Duty compliance to the Board and the FCA.
• Report plan: ensure all stakeholders, including the Board, are aligned on the detailed journey to report by July 2024 and develop the key actions to achieve this, from report skeleton, granularity, narrative building, key metrics to include, quality control over data used, any dry-runs and results of testing carried out by the second or third LoD or third parties.

Conclusion

By now, firms should be well on their way to gathering the data needed to prepare their first report. Time is of the essence, as data gaps and other issues will only become apparent as firms start the process of compiling their first report or dry-run. The FCA has made it clear that this is just the beginning of the Duty journey and firms will be expected to continue to improve in their Duty compliance efforts. To that end, having the right data and the right tools to interpret it will be essential. Through the Duty report, firms will have the means to explain how their efforts are contributing to better customer outcomes. Equally, the FCA will have the means to compare reports from different firms and identify good and bad practice as well as outliers. This means that investing early in getting the report right should pay off in terms of less supervisory challenge and a clearer roadmap to continue the Duty journey in the years ahead.

¹ Consumer Duty Policy Statement: FCA Handbook PRIN 2A.8.3/4/5 R and PRIN 2A.9R

² Compliance with the Duty meaning compliance with FCA Handbook Principle 12 and PRIN 2A