As the 31st of July 2024 approaches, firms are entering a crucial phase of preparation to meet the first Consumer Duty (the Duty) annual board reporting deadline. Ensuring timely compliance is essential, and this guide aims to provide a comprehensive overview of what firms need to know and do.
Overview of the Consumer Duty
The Duty mandates that firms deliver good outcomes for retail customers. This includes designing products and services that meet customer needs, ensuring transparent sales processes, offering fair value, and maintaining high standards of customer service. It represents a significant shift in the financial services industry, emphasizing a proactive approach to safeguarding customer interests and clear communication. Firms must not only comply with the Duty's requirements but also embrace its spirit, embedding consumer protection into their corporate culture.
Key Reporting Requirements
To comply with the Duty, each firm must provide an annual report to their board of directors. This report should detail the results of the firm's monitoring of customer outcomes over the year. It should highlight any risks that might prevent compliance with the Duty and recommend any necessary remedial actions.
The board's responsibilities include:
Reviewing and approving the report on customer outcomes.
Confirming the firm's compliance with Principle 12 and PRIN 2A of the FCA Handbook.
Assessing the alignment of the firm's future business strategy with these principles.
This process requires robust and objective challenge. The board must assess evidence of any poor outcomes, investigate root causes, and ensure that the absence of "bad outcomes" is not mistakenly equated with the presence of good outcomes. They must also agree on actions to mitigate identified risks, address poor outcomes, and amend the firm's business strategy as needed.
Essential Components of the Board Report
While the FCA has not provided a template for the board report, firms should include the following sections based on FCA Handbook requirements:
Executive Summary: Summarize the board's review, customer outcomes, compliance with the Duty, alignment with Principle 12 and PRIN 2A, identified issues, and proposed recommendations.
Governance Arrangements: Detail the role of various lines of defence within the firm and the assurance processes used to monitor and challenge compliance with the Duty.
Consumer Outcome Monitoring: Present metrics and results of the firm's monitoring efforts. Include a "RAG rating" for test areas such as fair value assessment, price benchmarking, complaints, and vulnerable customer treatment. Highlight identified risks and corrective actions.
Business Strategy: Explain how the firm's strategy supports the delivery of good outcomes under the Duty.
Board Approval: Each board member must sign off on the report, confirming compliance with the Duty and any corrective actions taken in response to identified risks and shortcomings.
Importance of Timely Compliance
Firms must submit their board reports by 31 July 2024. The FCA is unlikely to be lenient towards late filings, given the ample notice provided. Alongside the report, firms should be prepared to provide underlying management information and data to substantiate the report's findings. The FCA will use these reports to assess and evidence how firms have delivered good outcomes for consumers under the Duty. Thus, the annual board report is a critical reflection of how well firms have integrated these principles over the past year and will serve as a benchmark for continuous improvement.
Immediate Actions for Firms
Early Board Engagement:
Engage with the board immediately if not already done.
Keep the board informed about deadlines and potential absences due to the summer holiday season.
Schedule regular updates and checkpoints to review progress and address concerns.
Emphasize that ultimate accountability for compliance rests with the board and senior management.
Incorporate Stakeholder Feedback:
Allocate time for the board and stakeholders to review drafts, challenge content, and provide feedback.
Encourage a culture of constructive challenge to test assumptions and the robustness of the report.
Conduct a dry run to refine the report’s presentation and delivery.
Maintain Focus on Timely Submission:
Prioritize tasks and allocate resources to ensure compliance with the deadline.
Recognize the importance of timely submission to avoid FCA's unfavourable response.
By following these guidelines, firms can ensure they are well-prepared for the upcoming Consumer Duty board reporting deadline and demonstrate their commitment to delivering good outcomes for retail customers.
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