Consumer Duty Annual Board Report Guidance

Annual Board Report Overview

Section PRIN 2A.8.3 of the FCA Handbook requires firms to prepare a governing body report. This annual board report must set out all results and management information obtained from the mandatory outcome monitoring and testing. The board (or equivalent governing body) must review the report, approve the outcomes and any remedial actions and ensure that consumers are receiving good outcomes.

The Consumer Duty

The Consumer Duty (‘the Duty’) as published by the FCA, aims to provide retail customers with fairer, more transparent and suitable products and services. Firms with obligations under the Duty must develop and implement a framework of policies and controls that ensure compliance with PRIN 2A and Principle 12.

The basis of the Consumer Duty is to ensure retail customers receive good outcomes. This relates to communications, customer support and financial promotions in addition to retail market products and services themselves. The Duty introduced a new FCA Principle and COCON conduct rule, as well as cross-cutting obligations and four consumer outcomes.

Outcome Testing

To ensure that products, services, communications and support mechanisms provide good outcomes, it is essential for a firm to carry out ongoing and systematic outcome testing and monitoring. This means objectively analysing whether the outcomes being received by consumers are in line with those set by the FCA and PRIN 2A.

Outcome testing spans a wide variety of business areas and functions, which will differ depending on the scope, size and activities of a business. Outcome objectives can include (but are not limited to): –

• Clear, fair and legible communications.
• Easy to access support that is barrier free.
• Adequate information about risks, fees and any consequences.
• Knowledgable, informed advisers or agents.
• Products and services that have undergone a product approval process.
• Compliant financial promotions.
• Ensuring consumers are able to make informed decisions.
• Defining target markets and vulnerability assessments.
• Products that meet the needs and characteristics of the target audience.

Once a product has undergone the Product Approval Process stage, it will be possible for the firm to identify and define what fair value and good outcomes look like. These outcomes can then be used as part of the Outcome Monitoring Framework of policies and controls.

What to Include in the Annual Board Report

Outcome testing for Consumer Duty compliance is not just an essential practice for good customer outcomes. It is also necessary to compile the information needed to develop an Annual Board Report. The only way to know if consumers are getting good outcomes is to test the results against the defined outcomes. The management information obtained during the outcome testing is passed on to board members in a report format.

The FCA have not set a specific format for the annual report, but have detailed the areas that must be included. The Consumer Duty Annual Board Report should include the below information: –

• Results and outcomes of the monitoring undertaken to assess whether retail products and services are delivering the expected outcomes.
• Evidence and investigation of poor outcomes.
• Customer group and type comparisons and patterns to ensure outcomes are consistent and fair.
• Review of policies and procedures to ensure they are consistent with the need to deliver good consumer outcomes under the Duty.
• Customer experiences of a firms’ retail products and services.
• Compliance with and adherence to the Consumer Duty rules.
• Existing or potential risks and/or vulnerabilities that have or may cause non-compliance with the Duty.
• Impact and root cause evaluations.
• Summary of remedial actions and measures suggested and taken to address risks and/or poor outcomes.
• Future business strategy overview for maintaining ongoing compliance with the Duty.

Consumer Duty Templates & Tools

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