Consumer Duty View - Newsflash December 2024

1. Newsflash: FCA publishes feedback on its review of the First Annual Board Reports

On 11 December 2024, the FCA published feedback following its review of the First Annual Board Reports - this is the result of a "targeted and thematic review" of the reports from 180 firms from across the retail banking, wholesale, insurance, payments, consumer investments and consumer finance sectors.

The FCA's update also underscores the absence of a one-size-fits-all format for the annual board report, emphasising the need for a tailored approach based on a firm's size and capabilities. The FCA is clear that the good and bad practices should not be prescriptive but rather a tool for firms to assist in improving board oversight.

The FCA provides five examples of what it considers to be "good reports" as well as areas where it expects to see improvements:

Report Governance

Monitoring and Outcomes

Actions taken to comply with Duty obligations

Future Business Strategy

2. Newsflash: FCA publishes feedback on its review into firms' approaches to complaints and root cause analysis (“RCA”)

To support the guidance provided on board reports the FCA have also published good  practice and areas for improvement in relation to complaints and root cause analysis.

We have helped a number of firms recently to review and uplift complaint handling arrangements and embed root cause findings in consumer duty reporting. Let us know if it would be helpful to talk through how we are seeing these areas implemented in practice.

Complaints and root cause analysis: good practice and areas for improvement

The key findings are very similar to the FCA's comments on board reports. We would highlight the following:

• Complaints MI should be analysed for different groups of customers, including those with characteristics of vulnerability, to ensure issues are properly identified;
• It should be clear that action has been taken as a result of RCA findings which lead to demonstrable improvement in customer outcomes; and
• Any actions taken as a result of RCA findings should be measured to ensure they are the right changes to make.

Complaints data / MI

Understanding and monitoring the outcomes customers are experiencing is an essential part of meeting the requirements of the duty. Complaints data is one type of data which can be used by firms to track patterns and consider outcomes for different customer groups.

The FCA found that all firms were capturing complaints data but the quality of this was varied. Examples of good practice identified by the FCA included:

• Firms which had developed dashboards to set out MI, track outcomes and identify harm. One firm developed a dashboard which linked complaint volumes, complaint outcomes, FOS complaints, quality assurance and vulnerability back to the consumer duty outcomes enabling a deep analysis of outcomes and identification of high priority areas;
• Some firms prepared MI packs including a range of data setting out root causes and actions taken as a result - FCA determined that this was more likely to lead to meaningful discussion and actions in board and committee meetings;
• One firm stated that it considered Financial Ombudsman Service (FOS) complaints that weren't upheld to understand complaint drivers even where the outcome was fair;
• One firm used social media feedback alongside internal complaints data;

The FCA also identified the following area for improvement:

• In some firms the complaints metrics and data were not sufficiently granular to capture outcomes for different groups of customers, including customers with characteristics of vulnerability.

Root cause analysis

The FCA found that most firms sampled had an RCA framework set out clearly in policy / process documents. Example of RCA good practice were:

• Some firms developed an action plan with clear owners, deadlines and actions where issues were identified - some firms went on to assess the effectiveness of the actions taken;
• Some firms set out how they measured the effectiveness of actions taken, for example reviewing customer feedback on updated processes;
• Some firms had expanded responsibility for RCA beyond the complaints team and included people who could act on findings in relevant distribution lists; and
• One firm used the 'Five Whys' problem solving approach to encourage deeper thinking and challenge assumptions - this involves asking why five times in a row with each question building on the previous answer to seek a better understanding of the issue.

The FCA found the following areas for improvement within RCA:

• In some cases it was not evident that firms were taking action after identifying harm or, where changes were made, there was no consideration of the impact those changes had or whether more should be done;
• In some cases the RCA process was high level and didn't effectively identify trends or systemic issues;
• In some cases complaints data was used to inform operational planning (e.g. resource requirements) rather than addressing the underlying cause of the complaint;
• Some firms focussed on staff feedback and training rather than also considering whether other action would be appropriate;

Governance

FCA found that most firms had clear organisational structures and clear overall responsibility for complaints. Good practice identified was:

• Having clear escalation routes and accountability, meaning everyone across the business knew where to send information and who was responsible for driving change;
• Data dashboards or packs were presented at committee and board meetings with evidence of scrutiny and challenge;
• Some firms had made changes so teams worked more closely together to understand complaints data and identify action that should be taken;
• Some firms had the Consumer Duty as a standing agenda item where any new material issues, potential harm or notable complaints were raised to enable escalation to senior management;
• One firm captured systemic issues in a weekly MI email sent to risk committee members and executive level management;
• Most firms had appropriate thresholds for reporting lines where the severity of an issue was considered prior to escalation;
• Policy documents were interactive, engaging and informative including examples of common situations;
• Some firms had working groups focussed on the issues faced by customers with characteristics of vulnerability; and
• Training was mandatory and assessed with appropriate refresher courses - more detailed training contributed to better communications between complaint handlers and consumers.

FCA found the following areas for improvement in relation to governance:

• It wasn't always clear from organisational charts who was responsible for complaints;
• Where a specific person was named as responsible it wasn't always clear how issues were fed back to them;
• In some cases data appeared to be being sent to committees as a tick box exercise rather than as an opportunity to improve outcomes with no evidence of discussion by decision makers in the firm; and
• Where complaints were discussed at board / executive level it was not always clear whether there had been detailed discussion on the data and what actions would be taken - too often there was a lack of challenge.

Next steps

We recommend that firms review their complaint and RCA processes against the good practice and areas for improvement identified by the FCA. Key principles to ensure are embedded in processes are:

• Responsibility for complaints must be clear;
• Monitoring and data must enable effective understanding of complaint trends and drivers;
• There must be evidence of challenge and scrutiny of the data;
• Action to improve underlying outcomes must be taken as a result of issues identified;
• Any action taken must be monitored to ensure it is effective; and
• Proper consideration should be given to the outcomes being experienced by different groups of customers, including those with characteristics of vulnerability.