Consumer Duty - Q4 2023

First annual board assessment

Reports are often hardest the first time they are done: there isn’t a previous model to start from; governance, infrastructure and accountability might not be in place or fully embedded to support efficient delivery; and the data and MI on which they are based may either not be readily available or is still under development.

For many firms, these challenges are real and immediate as they prepare their first board assessment under the Consumer Duty, doing so at a time when firms are continuing with their established reporting cycles and practices.

Whilst firms will already have been actively engaged in overseeing the delivery of the outcomes required by the Consumer Duty since last July, the first annual board assessment is a holistic, firm-wide review at the board level.

The success of this review will depend on two key inputs. Firstly, the quality of the MI that the firm brings together (and, necessarily, the relevance and reliability of the data which underpins that MI – which might not have been data historically gathered by the firm). Secondly, the quality of the judgements based on that MI. Q1 2024 for many firms is the key time for pulling together the evidence and judgements which are crucial inputs to the board report.

For boards, this will be a substantive review exercise. There are two critical areas on which the board will want to focus:

• The results of the monitoring the firm has done to assess the outcomes it is delivering to consumers.
• Where there are risks to delivering good consumer outcomes, the firm’s plans for mitigating those risks.

Through all of this, the role of the Consumer Duty Champion will be crucial – in supporting but also constructively challenging the executive as to the effectiveness of the firm’s work and playing a key role in the board’s first assessment of the firm’s Consumer Duty work, with the Champion mindful of their own responsibilities in this new and unusual role.

The key to success is to ensure that the various stakeholders in the assessment play their parts: the executive is responsible for delivery; the board oversees that; and the Champion can help to bring the pieces together to enable informed judgements to be made about the delivery of customer outcomes. But the end of June deadline is fast approaching.

Data and MI

A key area of challenge for many firms has been to gather relevant, insightful consumer outcomes data – data which is fundamentally different to the inputs and activities data which firms have been used to gathering – and then to analyse that data through meaningful MI. That challenge is real not just at an operational level but also, as noted above, to enable the board to carry out its assessment of the outcomes the firm is delivering.

As firms have realised, data/MI must be tailored to the outcomes delivered by each of their products and services – data which will be an essential building block for Consumer Duty MI used in the firm at every governance level. As noted above, that focus on outcomes – rather than activities or other things which are easier to measure – is new for many firms.

The FCA recognises these data and MI challenges and is expecting to see a continuing evolution of firms’ data and MI so that they are better able to monitor customer outcomes.

While Consumer Duty MI is, in many firms, still a work in progress, it is important that firms make the best use of the MI they currently have, both for operational delivery and also for the first board assessment but continue to develop their MI suite further in the months ahead.