Consumer Duty: FCA Highlights Good Practice and Areas for Improvement

The FCA has published two sets of good and poor practice observations relating to the Consumer Duty, covering Products and services and Outcomes monitoring. The publications do not introduce new regulatory requirements. Instead, they provide examples of good practice and areas for improvement identified through the FCA’s supervisory work and offer firms a useful indication of how the regulator expects existing Consumer Duty requirements to operate in practice.

A common theme runs through both publications: firms should be able to demonstrate not only that appropriate Consumer Duty processes are in place, but that those processes are informed by customers’ actual experiences, identify potential harm and result in action where improvements are required. For firms within the scope of the Consumer Duty, the findings provide a timely opportunity to benchmark existing product governance and outcomes monitoring arrangements against the FCA’s expectations.

Products and services: understanding the target market

Under the products and services outcome, firms are expected to ensure that products and services are designed to meet the needs, characteristics and objectives of an identified target market and that the intended distribution strategy is appropriate. The FCA identified examples of firms using customer research and data to understand prospective customers and map their needs to product and service design. Some firms developed detailed customer profiles, while others used a negative target market to identify customers for whom a product or service may not be appropriate. The FCA also highlighted the value of customer impact assessments and end-to-end customer journey mapping to identify potential risks of harm and ensure appropriate mitigants are incorporated into product design.

However, the FCA found that some firms continued to define their target markets in overly broad or generic terms. This was particularly concerning where firms offered higher-risk products but could not adequately explain why the identified target market was appropriate given the product’s risk profile.

The message for firms is that target market assessments should be sufficiently granular and supported by evidence demonstrating why the product or service is appropriate for the customers for whom it is intended.

Vulnerability must influence product and service design

The FCA also identified weaknesses in how firms consider customers in vulnerable circumstances. In some cases, firms focused on how they identify or flag vulnerability, without adequately demonstrating what they do differently once additional needs have been identified. The FCA’s findings reinforce the importance of considering vulnerability throughout the product and service lifecycle. Firms should consider whether product design, communications, distribution channels and customer journeys need to be adapted to accommodate different customer needs.

This means firms should look beyond whether they have a vulnerability policy or customer flagging process and consider whether vulnerability actually influences how products and services are designed and delivered.

Product monitoring should consider actual customer behaviour

Product governance does not end when a product is launched.

The FCA highlighted firms using a range of information to understand whether products continue to deliver appropriate outcomes, including complaints and root cause analysis, customer and staff feedback, customer queries and product usage data.

Behavioural information can be particularly useful. For example, unexpected levels of product cancellation, low use of product benefits or other changes in customer behaviour may indicate that a product is not operating as intended or that customers do not fully understand it. Conversely, relying heavily on a single indicator, such as complaint volumes, may provide an incomplete picture.

The absence of complaints does not necessarily demonstrate that customers are receiving good outcomes. Firms should therefore consider whether their monitoring provides a sufficiently rounded view of how customers are actually using and experiencing their products and services.

Outcomes monitoring: from collecting MI to understanding outcomes

The FCA’s findings on outcomes monitoring reinforce a particularly important point: effective monitoring is about more than collecting data or producing reports. The stronger approaches identified by the FCA established clear monitoring frameworks defining what good outcomes looked like at different stages of the customer journey. Firms then translated those outcomes into measurable indicators and used the information collected to identify emerging risks, challenge performance and determine whether action was required.

This contrasts with firms relying on high-level metrics without a clear structure for determining whether customers are experiencing poor outcomes or foreseeable harm.

Firms should therefore be able to explain:

what a good customer outcome looks like;
which metrics and indicators are used to assess that outcome;
why particular metrics, thresholds and tolerances have been selected;
how potential poor outcomes or emerging risks are identified;
how information is escalated and challenged;
what action is taken where concerns arise; and
how the firm determines whether its intervention has actually improved customer outcomes.

The key question is not simply “what are we measuring?”, but “what does the information tell us about the outcomes our customers are receiving?”

Closing the loop: did the intervention actually work?

An important theme across both FCA publications is the need to assess the effectiveness of action taken. The FCA identified examples of firms making meaningful changes in response to monitoring, including changes to products, customer communications and customer journeys. However, in some cases firms were unable to demonstrate whether those interventions had actually resulted in better customer outcomes.

This is an important distinction.

Identifying an issue and implementing an action does not necessarily complete the Consumer Duty monitoring cycle. Firms should consider what information will demonstrate whether the action taken addressed the underlying cause and resulted in the intended improvement. Effective outcomes monitoring should therefore operate as a continuous cycle of identification, investigation, action and evaluation.

Distribution chains and third parties

Both publications also reinforce the importance of understanding customer outcomes where other firms or third parties form part of the delivery or distribution chain. Manufacturers should ensure their distribution strategy remains appropriate for the target market and that distributors receive the information they need. Distributors should similarly review their distribution arrangements and consider whether products are reaching the intended target market. From an outcomes monitoring perspective, firms should also consider whether information held by distributors, outsourced service providers or other third parties is necessary to understand the overall customer experience.

The FCA has highlighted examples of firms using MI, regular reviews and targeted engagement with third parties to identify and address issues. This does not mean every firm is expected to oversee every activity performed elsewhere in a distribution chain. The appropriate approach will depend on the firm’s role and responsibilities. However, firms should be able to demonstrate that they have access to sufficient information to understand the customer outcomes for which they are responsible.

Governance: demonstrating challenge and action

The FCA has observed stronger engagement from Boards and senior management, including clearer accountability and improved action tracking. However, effective governance involves more than receiving Consumer Duty dashboards or reports. Boards and senior management should be able to demonstrate meaningful challenge, discussion and decision-making.

Where monitoring identifies potential poor outcomes, there should be a clear audit trail showing how the issue was considered, what decisions were made, who was responsible for the resulting actions and whether those actions were effective. This reinforces the importance of ensuring Consumer Duty MI is sufficiently clear and focused to support informed senior management and Board oversight.

Proportionality for smaller firms

The FCA has also emphasised that effective outcomes monitoring does not necessarily require complex systems, extensive customer research or large dedicated teams. Smaller firms can adopt a proportionate approach based on their size, business model, products and customer base. For example, firms may use a smaller number of carefully selected indicators, operational MI, complaints and root cause analysis, customer feedback and insights from experienced frontline staff. The important point is that the information used provides a meaningful view of customer outcomes and enables the firm to identify and respond to potential harm.

What should firms consider doing now?

The FCA’s publications do not require firms to redesign their Consumer Duty frameworks simply because another firm has adopted a particular example of good practice. However, firms should consider whether the findings identify weaknesses or opportunities for improvement within their own arrangements.

In particular, firms should consider whether:

target markets are sufficiently granular and supported by evidence demonstrating why products and services are appropriate for the intended customers;
customer research, customer profiles, negative target markets or customer journey assessments could strengthen existing product governance;
vulnerability is reflected in product and service design, rather than being limited to identification and flagging processes;
product monitoring incorporates a sufficiently broad range of information, including complaints, customer feedback, operational information and relevant behavioural or product usage data;
outcomes monitoring clearly defines what good and poor outcomes look like and links these to meaningful metrics and thresholds;
Consumer Duty MI identifies emerging risks and foreseeable harm rather than simply reporting activity;
there is a clear link between MI, escalation, governance decisions and remediation;
the effectiveness of actions and interventions is subsequently tested;
sufficient information is obtained from relevant distributors and third parties to understand customer outcomes; and
Boards and senior management can evidence appropriate challenge and oversight of the outcomes customers are receiving.

How Complyport can help?

conducting targeted Consumer Duty healthchecks and gap analyses to benchmark existing arrangements against the FCA’s latest examples of good practice and areas for improvement;
assessing outcomes monitoring and management information (MI), including whether firms have appropriate metrics and thresholds to identify poor outcomes and foreseeable harm; and
reviewing Consumer Duty governance and oversight, including Board and committee reporting, challenge, escalation and whether identified issues result in effective remediation and improved customer outcomes.