The Annual Consumer Duty report by the FCA was recently updated, focusing on smaller firms, with findings revealing good practices and areas for improvement. Thistle Initiatives Consultant, Sophia Ioannou, explores the report and what it means for firms.
The FCA has updated its findings in relation to smaller firms from its review of the annual Consumer Duty Board report completed by firms. Findings include good practices and areas for improvement. The findings have been broken down into the following areas: report governance, monitoring and outcomes, measures taken to comply with Consumer Duty obligations and future business strategy.
Report governance
Firms are required to complete an annual Consumer Duty report demonstrating the results of monitoring required under the Consumer Duty rules. This report must be reviewed and approved by the board.
The use of a ‘critical friend’ can be considered by smaller firms to provide impartial guidance on the firm’s approach and Consumer Duty report, assisting them with understanding regulatory expectations with regard to the Consumer Duty. It is important that responsibility for implementing and monitoring the Consumer Duty is clearly documented.
Monitoring and outcomes
An assessment of monitoring and Consumer Duty outcomes is required to be included in the Board report. The following areas of good practice were observed:
- A proportionate approach to delivering and monitoring good customer outcomes, including alternative approaches for monitoring purposes where appropriate.
- Clear explanations of data and evidence used to assess Consumer Duty outcomes.
- Evidencing that appropriate steps are taken, communicating with third parties across the distribution chain.
Areas for improvement include:
- The use of practical insights can be considered to provide firms with information to assist with their understanding of their customers, closing gaps where the range of management information and formal analysis may be limited, unavailable or costly.
- Firms can consider using qualitative data from customer feedback and complaints to support conclusions on customer outcomes achieved. External sources, such as the Financial Ombudsman Service and insights for trade bodies, can be used to obtain data for the purposes of board reports, allowing firms to consider issues, case studies and obtain benchmarking insights.
Measures taken to comply with Consumer Duty obligations
The Board report should include an overview of measures taken to address any risks or issues. The following areas of good practice were observed:
- Closer relationships between small firms and their customers, resulting in informal and tailored solutions for consumers who were considered vulnerable.
- Greater flexibility was observed across smaller firms which resulted in faster responses to address potential risks of delivering poor outcomes and was demonstrated through feedback received from customers and advisers.
The use of external experts would assist with advising on appropriate action to be taken, where accessible at a reasonable cost. This would help firms meet the FCA's expectation that they should be identifying measures to ensure adherence to the Consumer Duty obligations.
Future Business Strategy
The Consumer Duty report should consider how the firm’s future business strategy aligns with its responsibility to deliver good outcomes. The following are identified as areas of good practice:
- Appropriate training is being provided, including scenario-based training with practical examples of customer interactions to ensure staff understand the Consumer Duty.
- Records of training delivered are being maintained to help identify potential skill gaps.
- Frequent informal check-ins and discussions among peers to ensure understanding of the Consumer Duty, providing a forum for raising practical issues.
- Customer outcomes are being incorporated into staff objectives to reinforce the Consumer Duty.
- Effective governance arrangements, including reviews on a monthly or quarterly basis to ensure the Consumer Duty is met.
Embedding a culture of compliance with the outcomes of Consumer Duty is expected across firms of all sizes. Capturing and documenting key takeaways from customer transactions will help firms strengthen their approach and support the delivery of good outcomes in the future.
What does this mean for firms?
Smaller firms should consider the good practices and areas for improvement identified to ensure the requirements of the Consumer Duty obligations are applied proportionately, given their size.
Meet the Expert
Sophia Ioannou, Consultant 
Sophia recently joined Thistle as a Consultant in the Investment Wholesale team. She holds a Bachelor of Science in Psychology from the University of Nottingham and brings a strong foundation in investment compliance. Before joining Thistle, she worked at a hedge fund where she supported regulatory development projects and contributed to policy reviews, giving her practical insight into how firms adapt to emerging requirements. She has also completed the CISI Introduction to Securities and Investment and Global Financial Compliance modules, which further strengthened her technical knowledge.