Consumer Duty: FCA review on firms' approaches to outcomes monitoring

Following our recent Consumer Duty View+, we wanted to provide you with an update on the FCA's publication from earlier this week on the key issue of outcomes monitoring. The publication is noteworthy as the FCA has been clear that the findings are intended to support future supervisory engagement.

We've set out further details on the findings of the review below. The three most important messages are:

• Better outcomes monitoring does not necessarily require more MI – The firms making the strongest progress are using the information they receive more effectively to understand their customers, identify harm earlier and drive meaningful improvements. A clear message throughout the publication is that firms should be able to demonstrate a link between the information they collect and the risks they are seeking to manage.
• Monitoring should focus on specific stages of the customer journey – This enables the firm to identify where poor outcomes were emerging and take targeted action before harm became more widespread. This reinforces the importance of understanding where and why customer issues arise.
• Governance structures alone are not enough – The FCA found that firms were generally able to explain their governance arrangements, but were often less able to demonstrate how those arrangements drove decisions and improvements in customer outcomes. The FCA expects firms to be able to evidence effective challenge, escalation and decision-making, rather than simply reporting outcomes information through governance committees.

We have undertaken a number of assessments of firms’ MI to provide legal assurance on its compliance with regulatory expectations, together with actionable and proportionate enhancements. As you digest the FCA’s latest feedback on good practice and areas for improvement, do let us know if you want to understand more about how we could support an assessment of your Consumer Duty monitoring.

Background

The FCA reviewed 56 firms across a range of sectors, sizes and business models, assessing board reports and responses to information requests. Its review focused on three main areas: (i) strategy and framework; (ii) data, management information (MI) and testing; and (iii) governance, oversight and culture.

Key findings

The findings are intended to help firms identify strengths and weaknesses in their approaches to outcomes monitoring and take action where improvements are needed. Overall, the FCA found that the strongest approaches were structured, evidence-based and focused on using monitoring information to improve customer outcomes.

A recurring theme in the findings is that collecting data and reporting MI is not, by itself, sufficient. Firms should be able to demonstrate a clear link between the information they collect, the risks and issues they identify, the actions they take in response and the resulting improvements in customer outcomes.

The key findings are summarised below.

• Structured and coherent approaches – Firms with structured monitoring frameworks were better able to articulate what good customer outcomes look like in practice and how they would be achieved. By way of example, firms had regular governance discussions about areas such as complaints handling and service review, and when issues were identified they followed a structured process to understand what had gone wrong and agree actions. Those actions were then tracked and updates provided to the governance forum to check that changes had been implemented and were working. Some firms identified the key risks of customer harm associated with their products and services and used those risks to set clear outcome expectations, indicators and monitoring activities.
• Data-driven decisions – Stronger firms produced clear evidence that data and MI drove informed decisions and improvements in customer outcomes. For example, a firm offering high-risk products used a financial vulnerability indicator to identify customers whose net deposits were high compared to their declared income. It reviewed customers above its internal threshold individually and tailored its response to each customer, in some cases checking customer welfare and in others closing accounts. The FCA also highlighted examples of firms using technology and AI-assisted testing to support more effective monitoring.
• Monitoring across key stages of the customer journey – Good practice involves looking at specific details of different parts of the journey, rather than simply having high-level indicators of overall outcomes. This enables firms to identify where poor outcomes are emerging and take targeted action before harm becomes more widespread. For example, one firm introduced an in-app chat so that customers could get an immediate response from the appropriate support team and reduced average resolution time from four days to under three hours.
• Governance and oversight that supports action and improvement – Firms should have clear governance arrangements to oversee and challenge outcomes, including regular reviews of information and effective escalation routes. For example, presenting MI to senior governance forums including named owners, target dates and status updates, with oversight provided through the Consumer Duty Champion, senior management and board-level reporting. Stronger approaches show how these elements lead to improvements over time.
• Monitoring beyond the firm – Firms should consider whether poor outcomes may arise elsewhere in the distribution chain and should obtain and use information from relevant third parties where necessary to identify and address customer harm. The FCA noted that firms could take a proportionate approach and have targeted engagement with key partners about potential issues.

Key takeaways

The FCA makes clear that the quality and effectiveness of Consumer Duty monitoring frameworks will be a continued supervisory focus. As such, firms must move beyond data collection towards demonstrating a clear, evidenced link between MI, decision-making and improvements in customer outcomes. In light of this review, we recommend considering the following:

• Reviewing your outcomes monitoring framework to ensure it defines good and poor outcomes at each material stage of the customer journey, supported by clear, evidence-based thresholds.
• Assessing whether customer outcomes are monitored at a sufficiently granular level, including across different customer cohorts and customers with characteristics of vulnerability.
• Reviewing whether your MI and data are sufficiently forward-looking and whether a clear audit trail exists from issue identification through to decision-making, remedial action and outcome assessment.
• Testing whether interventions are delivering the intended outcomes, rather than focusing solely on whether action plans have been implemented.
• Evaluating whether governance arrangements facilitate genuine board-level challenge, not simply the receipt and approval of management reporting.
• Confirming that monitoring extends appropriately to third-party and distribution-chain arrangements, and that outcome data received from those parties is actively reviewed and acted upon where necessary.

As noted above, the FCA has indicated that the findings are intended to support future supervisory engagement, making them a useful indicator of the areas on which firms can expect regulatory scrutiny to focus.