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We’ve mentioned on several occasions that the FCA is more proactively targeting firms with whom they’ve had no previous direct involvement, and this trend appears to be continuing. So it came as no surprise to see one such firm receive an unsolicited email from the regulator on 29 July.

It also came as no surprise that the email requested a copy of the firm’s annual Consumer Duty Board Report, but what grabbed attention was that the request was made before the date that reports are due. The FCA is clearly turning up the heat.

So what did the email say?

After some preamble about Consumer Duty setting higher standards and being a year old it went as follows:

Board Report Review

We want to assess how firms are monitoring and assuring themselves they are acting to deliver good customer outcomes. 

We also want to support our smaller firms by highlighting good practice and any areas for improvement to help drive good practice and clarify our expectations with regards to proportionality​. 

We are therefore undertaking a cross-sector review of a sample of board reports provided by a range of FCA regulated firms. The output of this work will be to identify, and share publicly, good practices and areas for improvement.   

We have selected your firm for inclusion in this Board Report Review. This work will commence soon after 31 July 2024 when your first report is due. 

The assessment should include:

• the results of the monitoring you have undertaken to assess whether products and services are delivering expected outcomes in line with the Duty.
• any evidence of poor outcomes, including whether any group of customers is receiving worse outcomes compared to another group, and an evaluation of the impact and the root cause.
• an overview of the actions taken to address any risks or issues.
• how the firm’s future business strategy is consistent with acting to deliver good outcomes under the Duty.

Before signing off the assessment, the board or equivalent governing body should agree: 

• the action required to address any identified risks.
• any action required to address poor outcomes experienced by customers.
• whether any changes to the firm’s future business strategy are required.

Our rules do not set a specific template for the Board report, and it is for individual firms to determine what is appropriate for them. The length and detail of reports will likely depend on the nature and extent of your firm’s business activities and the impact they have on consumer outcomes.

The Duty applies in a reasonable way, and we recognise firms will have different capabilities depending on their size, resources and activities. Smaller firms should think about how they can bring in some independence and objectivity into their assessment in the absence of a Board, for example through a critical friend who can provide support and challenge.  

Chapters 10 and 11 of our Finalised Guidance contain more information on governance and monitoring outcomes under the Duty. 

And it went on to say…

Action required - Information Request 

As the report is a regulatory requirement, and firms have had a year to prepare their first report, we expect the following information to be readily available and not a burden for firms to submit. Therefore, please supply the following information as detailed below: 

• The firm’s Board (or equivalent governing body) Consumer Duty Report.
• any supporting supplementary information provided to the board to enable them to conduct their assessment.
• evidence of the report being approved, to include the relevant extract from the board meeting minutes (or equivalent) together with any discussions on the content, findings or recommendations.
• the agreed action plan to address any identified risks or poor outcomes for customers.
• confirmation of whether any changes to the firm’s future business strategy are required.

for the FCA. This was an unsolicited request to a firm that has never had any direct contact with the regulator beyond its half yearly Reg Data returns.

Note that production of the report is a regulatory requirement. It isn’t optional, so those firms that decide to ignore this could find that summer just got very hot indeed!

Our view

Some firms have prepared well and if they receive a request for their CD Annual Board Report it won’t be a problem, but many others have seemingly carried on as if nothing has happened and think that if they ignore Consumer Duty it will just go away. It won’t.

As far as they’re concerned it’s business as usual and because they don’t receive a litany of complaints they convince themselves that everything in the garden is rosy and tickety-boo. Their business model has worked for years, so why change a winning formula?

This is all fine and dandy, up to the point when the unsolicited email from the regulator lands in the SMF16’s inbox.

As we’ve mentioned before, the FCA is obtaining more and more data from firms and they are taking a more proactive stance when the data submitted raises issues and failure to produce a coherent board report, supported by a meaningful CD Implementation Plan is a sure fire way of getting your firm under the microscope.   

We’re also aware that the regulator has started targeting replacement business again, possibly because this has a higher probability of poor client outcomes and based on our experience it’s likely that some past business reviews could be on the cards.

Anyone who wants convincing that the FCA is taking Consumer Duty and the consequences of poor client outcomes seriously, need look no further than the very well publicised issues summaffecting two of the largest advisory firms, but as we can see here, it’s not just the big outfits that are under scrutiny because more and more firms that have never got up close to the regulator are now being contacted. If you haven’t (yet) got your ducks in a line, it may not be long before you’re asked to prove that you have.

Action required by you

Production of a Consumer Duty Annual Board Report isn’t something firms can afford to ignore. As the email confirms, it’s a regulatory requirement, so if you haven’t got yours sorted yet you need to get active, and fast.

We’ve produced a template document to assist firms with this important activity, but a template alone won’t be sufficient. Firms need to be able to explain what they’ve done, what they plan to do and provide robust evidence to support their assertions. MI and documented rationale are essential and without these it’s easy to ride a coach and horses through unsubstantiated claims.

Those who continue to ignore their obligations in relation to Consumer Duty are sleepwalking into a potential world of grief. The FCA suggests bringing in a ‘critical friend’, so if you’re not where you need to be please contact us to see how we can help.