For many FCA-regulated consumer credit firms, the next annual Consumer Duty Board Report is now only weeks away.
Last year’s reports were largely focused on implementation. Firms were establishing governance frameworks, developing management information and embedding the principles of Consumer Duty across their operations.
This year is different.
Recent commentary from the Financial Conduct Authority suggests the regulator is increasingly interested in how firms are assessing outcomes, challenging assumptions and demonstrating that Consumer Duty is driving real improvements for customers.
For compliance professionals, operational leaders and directors, now is the time to move beyond preparation and start testing whether the evidence supports the conclusions being reached.
The annual report is not a compliance exercise
One of the most common mistakes firms make is treating the Board Report as a regulatory deliverable.
The FCA’s expectation is much broader.
The report should provide a genuine assessment of whether the firm is delivering good outcomes for customers and whether any emerging risks require further attention.
Boards should be able to understand:
- what outcomes are being achieved;
- where risks exist;
- what improvements have been made;
- what concerns remain; and
- what actions are planned.
A report that simply confirms compliance is unlikely to provide the level of challenge the FCA expects.
Start with the data, not the narrative
Many firms begin drafting the report before fully assessing the underlying evidence.
This often results in conclusions being written first and data being used later to support them.
The stronger approach is the opposite.
Begin by reviewing the management information, customer outcome data and operational metrics available across the business. Only once that information has been assessed should firms begin forming conclusions.
The FCA is increasingly requesting not only Consumer Duty reports but also the underlying data and rationale supporting those reports. Firms should therefore assume that any conclusions may need to be evidenced in detail.
If the data tells a different story to the narrative, the data will ultimately win.
Review whether your MI tells a coherent story
Consumer Duty reporting should not be an exercise in producing more data.
The objective is to understand what that information is telling the business.
Many firms have developed extensive management information packs, but some still struggle to demonstrate how the various metrics connect to customer outcomes.
As part of the review process, firms should consider:
- whether customer outcomes can be clearly identified;
- whether trends are emerging over time;
- whether different customer groups experience different outcomes; and
- whether identified risks are reflected consistently across reporting.
The best Board Reports tell a coherent story rather than presenting disconnected statistics.
Challenge assumptions before the Board does
One of the most valuable exercises firms can undertake before finalising the report is internal challenge.
If management concludes that outcomes are positive, what evidence supports that conclusion?
If a product is considered to provide fair value, how has that been assessed?
If complaints are low, does that automatically indicate good outcomes?
The FCA is increasingly interested in the rationale behind conclusions. Firms that challenge themselves before the Board meeting are often better prepared to answer difficult questions later.
Don’t overlook vulnerable customers
Vulnerability continues to be a major area of focus.
The annual report should demonstrate not only that vulnerable customers have been considered, but that outcomes are understood and monitored.
Questions worth asking include:
- Are vulnerable customers experiencing different outcomes?
- Are support measures working effectively?
- Are complaints or arrears patterns different for vulnerable customers?
- Have any emerging risks been identified?
The ability to evidence these considerations is becoming increasingly important.
Link findings to action
Perhaps the most important element of the report is demonstrating what the firm has done in response to what it has learned.
The FCA is not expecting perfection.
It is expecting firms to identify issues, challenge themselves and take action where improvements are needed.
This may include changes to:
- underwriting processes;
- customer communications;
- vulnerability frameworks;
- complaints handling;
- collections activity; or
- management information itself.
The strongest reports show a clear link between insight and action.
Consider independent challenge
As expectations continue to increase, many firms are seeking independent review before Board approval.
An external perspective can help identify gaps, challenge assumptions and provide assurance that conclusions are supported by evidence.
This is particularly valuable where firms have developed Consumer Duty reporting internally and wish to test whether it would withstand regulatory scrutiny.
How ALPH Legal & Compliance Can Support
ALPH Legal & Compliance supports consumer credit firms in preparing, reviewing and challenging Consumer Duty Board Reports.
We work with firms to assess management information, review customer outcome monitoring, challenge conclusions and ensure that reports are supported by clear evidence and robust rationale. This includes independent Consumer Duty audits, Board Report reviews and practical support in preparing for regulatory engagement.
As firms enter the next reporting cycle, those that can clearly demonstrate outcomes, challenge assumptions and evidence decision-making will be best positioned to meet FCA expectations.
To discuss how ALPH can support your firm, get in touch with our team.