On 11 December 2024, the Financial Conduct Authority (FCA) issued its findings of the review into firms’ approaches to completing the first annual Consumer Duty Board report. Within the review, the FCA highlights good practice and areas for improvement that firms will need to note as they start to prepare for this year’s Board Report. The review covered the first annual Consumer Duty Board reports from some 180 firms, across sectors, with firms of all sizes represented in the sample.
The FCA found that:
‘the best reports were structured in a way that made them easy for their boards to scrutinise the key elements that the rules and guidance suggest they should cover’. I.e. How has the firm assured itself it is delivering good outcomes and evidenced it in the report in a way the Board can really scrutinise?
Five key aspects of good reports:
- Clear outcomes focus:
- Dedicated sections focused on each of the 4 outcomes, detailing what good outcomes looked like for customers holding their products.
- Good quality data:
- Commentary on good outcomes supported by good quality Management Information (MI) that backed up the firm’s conclusions.
- Analysis of different customer types:
- Consideration of different groups of customers, including those with characteristics of vulnerability.
- Clear processes for production of the report:
- Processes in place for producing reports for firms’ governing bodies to review and approve within the necessary timeframe.
- A focus on culture throughout the firm:
- Commentary emphasising firms’ commitment to effectively implementing the Duty and the role of a positive culture in delivering good outcomes.
Five areas for improvement:
- Better data quality:
- Some firms did not have sufficient data quality to justify conclusions or to give governing bodies adequate assurance that firms are meeting their obligations under the Consumer Duty. Some also failed to provide clear explanations with their MI to demonstrate that it shows evidence of good customer outcomes.
- Comprehensive view across distribution chains:
- Some reports did not contain evidence that an appropriate amount and types of information have been shared between the firm and third parties across the distribution chain.
- Analysis of different customer types:
- This means, some firms did not evidence that adequate consideration had been given to outcomes for different groups of customers, including those with characteristics of vulnerability.
- Challenge from the board:
- It was not always evident that there had been effective challenge from firms’ governing bodies on the content of the reports. An example of this would be, through the minutes of board meetings.
- Taking effective action:
- Some action plans and improvements were not accompanied by further details. This includes timescales, action owners, and clarity on the data that would be used to evidence good outcomes.
Next Steps – Square 4 Consumer Duty Board Report Guide
The FCA acknowledge in its review that every firm’s board report will be different. The FCA’s examples of good and poor practices are not meant to prescribe the specific contents of board reports. Instead, they are shared to help firms determine how to enhance board oversight and reporting processes. Nevertheless, Square 4 appreciates that firms can find the production of the annual Board Report challenging.
Last year, Square 4 produced the Square 4 Consumer Duty Board Report Guide for firms to download. We created this document to help firms ensure that all regulatory expectations, rules, guidance, and industry best practices are properly considered, documented, and approved. Ensuring a robust approach will enable firms to adequately demonstrate they are meeting their Consumer Duty obligations. This helps to highlight the plans in place to continue improving customer outcomes on an ongoing basis.
Square 4 have worked with many firms, across sectors, along with trade association partners in developing their Consumer Duty Board Reports. We have updated this valuable guide for 2025. To gain insight into the best preparation for the 2025 Board Report deadline, download the full guide by clicking below.
Should you wish to discuss how we might be able to support your firm further? Please get in touch with us at hello@square4.com.
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