The regulator underwent a review of banking firms’ implementation of Consumer Duty, which came into force for current products on 31 July. The findings apply to banks, building societies and mortgage providers.
The FCA said: “While some firms considered treatment of vulnerable customers within their reviews of products and services, this was lacking in some firms’ documentation.
“We remind firms that the Consumer Duty raises the standard of care to all consumers.”
Looking at Consumer Duty frameworks
The FCA said that firms took “varying approaches” to assessing products and services against Consumer Duty, with firms creating frameworks with “clear expectations and or/user guides” better able to show how they were applying the Duty to different products and services.
The regulator said some firms looked at how they could set baseline standard for good customer outcomes, and this helped “implement a consistent approach”.
It continued that it saw “good examples” of how firms were implementing frameworks.
“In the better practice we observed, reviewers were guided towards answering key questions linked to requirements within each outcome and asked to provide evidence in the form of commentary and/or data points to justify their answers.
“This enabled firms to clearly identify gaps and prioritise workplans to resolve them, noting where some gaps were dependent on others being resolved,”
The regulator said that the range of data used to back up these assessments varied and said firms needed to be able to show they are delivering good customer outcomes and make changes when this does not occur.
It said firms who used a range of data points were better able to consider different customer types and outcomes.
The FCA said that some firms ha identified a wider range of data, with some construction data libraries.
Consumer Duty frameworks should lead to ‘clear plans’
The FCA said that most firms had “clear plans in place” including suitable remediation, ownership, timelines for completion, budget and mitigation plans until the gap between customer outcomes was resolved.
“Where firms had outstanding actions resulting from their gap analysis, they should have considered the potential extent of harm from failure to meet the deadline and have clear mitigation plans in place,” it said.
However, the regulator said that some firms had not offered complete outputs of their analysis, which made it difficult to ascertain whether firm had “fully considered all customers’ outcomes through a range of scenarios”.
The FCA said: “We remind firms of the need to monitor their customer outcomes, and to be able to provide evidence of their monitoring and assessment of these outcomes and any resulting action, on request.”
Distribution strategy should clearly identify target market
The regulator said that better frameworks it reviewed had “clearly identified the target market”, which included who the product was suitable for and who it was not.
The frameworks should consider a wider range of distribution channels and strategies and firms also showed “specific target market controls” to test “product control and effectiveness of the distribution strategy”.
On product design and features, the regulator said there was evidence of firms using quantitative and qualitative factors, along with some evidence of firms monitoring how the product performed in different market conditions and customers’ changing needed.
“Firms should ensure they have adequate monitoring in place when reviewing product design and features or when introducing new products,” it noted.
‘Test and learn approach’ for consumer understanding
The regulator said that there was evidence of a range of companies taking on a “test and learn approach” in their review of consumer understanding.
In better practices, it said that companies had identified the area responsible for communication, narrowed down key communications or prompts customers used in decision making and used a range of testing when they reviewed consumer understanding.
“Following the review, these firms put clear actions in place to identify gaps and improvements needed to increase consumer understanding,” the FCA said.
‘Improved processes’ in mortgages for debt consolidation
Specifically looking at mortgages for debt consolidation, the regulator said it saw “examples of improved processes for monitoring changes to customer circumstances across the product’s lifetime”.
It continued that some firms had looked at implementing “ongoing feedback loops” with “key distribution partners” and had started work to address “common challenges in the chain” that could cause delays for the consumer.
The FCA noted that only a “limited number” of companies had clear communication plans to support customers throughout the product lifecycle beyond that offered to customers who were not using mortgages for debt consolidation.
“It was disappointing that several firms did not consider that consumers were using mortgages for debt consolidation purposes. We remind firms they need to ensure they have meaningfully considered the debt consolidation customer journey where a product allows for debt consolidation.
“This is the case even where firms may not have specifically designated these products as debt consolidation products,” the FCA said.
The regulator said all firms should be “focused on putting consumers at the heart of their business and delivering good outcomes” and ensure they are complying with the Consumer Principle, cross-cutting and outcome rules.
They also need to ensure they have the appropriate MI and can evidence customer outcomes.
