Consumer Duty – Outcomes monitoring multi-firm review

The review provides practical examples of good and poor practices, including the types of metrics firms should be monitoring. We summarise the key points below.

Poor practices

Tick-box metrics

Concern was raised by the FCA over some firms’ reliance on metrics which focus on the completion of internal processes, rather than outcomes-focused customer insights. For example, the proportion of fair value assessments, product reviews or communications reviews that had been completed on time. These metrics measure compliance with internal processes and timeliness rather than provide any indication of the value provided to customers.

Good news stories

Some firms were identified as being prone to setting blanket thresholds or tolerances across products that tended to report ‘green’ across the year. Other firms also relied on using industry averages without justification to set their reporting thresholds. The FCA emphasised the importance of ensuring that the relevant thresholds, tolerances and RAG ratings are thoughtfully assessed and set to quickly indicate where something is awry. There should be a clear rationale to justify how these thresholds have been determined, as well as controls in place to keep them appropriate over time. Where metrics have never had any tolerance breaches, firms should make sure these thresholds are still fit for purpose.

One size fits all

The Duty requires customer outcome monitoring to be sufficiently granular to identify whether any group of retail customers is experiencing different or worse outcomes. Some firms were not able to demonstrate in their reporting or management information that they were monitoring outcomes for distinct customer groups. Even for mass-market products, firms should analyse customer outcomes for a range of different customer groups. Examples of ways to cut the data include monitoring outcomes for prime/sub-prime customers, customers with different tenures, ages and residency statuses, as well as different characteristics of vulnerability. Further root cause analysis and action should be taken where there is any indication that groups of customers might receive different outcomes than other groups.

Fortunately, the FCA sets out a range of good practices observed during the review, which should be adopted going forwards.

Good practices

Articulation of good outcomes

Firms that had clearly defined what good outcomes would look like for their business models and customers were better able to determine meaningful metrics and data to monitor them. Forming a strong understanding of outcomes within the business and articulating them clearly provided a solid foundation on which to design the monitoring approach under the Duty.

Varied data sources

The FCA praised the use of varied, holistic data types to monitor customer outcomes. This included a mixture of qualitative and quantitative data, RAG-rated data, trend data and key indicators that are mapped against the four Duty outcomes. Other sources of relevant data could include service level agreement (SLA) compliance, product performance data, second- and third-line review findings, customer feedback, internal quality assurance, complaints analysis, process completion, product governance findings, employee surveys and deep dive analysis. The FCA highlighted the importance of including comprehensive narratives and context to interpret data meaningfully within firm reporting and management information.

Second-line challenge

Some firms successfully demonstrated that they had integrated second-line scrutiny of how customer outcomes are monitored. In these instances, there was strong evidence of the second line providing a challenge to the first-line owners of customer outcomes. The multi-line dynamic (across the three lines of defence) strengthened firms’ approaches to delivering good customer outcomes with scrutiny on the type and granularity of data being used, its interpretation, and the thresholds applied.

The FCA recognised that firms will adapt and evolve their approaches to monitoring customer outcomes over time.  As the final deadline for Consumer Duty implementation approaches at the end of July, this provides a good opportunity for senior management to reflect on the success of embedding the Duty with this latest guidance in mind.

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