Consumer Duty Compliance — A Practical Implementation Guide for Regulated Firms

What Is the Consumer Duty?

The Consumer Duty came into force on 31 July 2023 for new and existing products and services (and 31 July 2024 for closed products). It introduces a new Principle 12 into the FCA's Principles for Businesses:

"A firm must act to deliver good outcomes for retail customers."

This is supported by three cross-cutting rules requiring firms to: 1. Act in good faith towards retail customers 2. Avoid causing foreseeable harm to retail customers 3. Enable and support retail customers to pursue their financial objectives

The Duty represents a fundamental shift from a rules-based, process-focused approach to one centred on outcomes. The FCA has made clear that compliance cannot be achieved through documentation alone — firms must demonstrate that their business practices actually deliver good outcomes.

The Four Outcomes

1. Products and Services: Firms must ensure that products and services are designed to meet the needs, characteristics and objectives of a target market. This requires: - Defining a target market for each product — including identifying any groups of customers for whom the product is not suitable - Conducting a product approval process that assesses whether the product meets the target market's needs - Monitoring distribution to ensure products reach the intended target market - Reviewing products periodically to confirm they continue to deliver as intended

2. Price and Value: Firms must ensure the price of products and services represents fair value for retail customers. This requires: - Conducting a fair value assessment for each product, considering the benefits provided, the costs to the firm and a comparison with similar products in the market - Identifying and addressing any features that could result in customers paying for benefits they are unlikely to receive - Considering whether differential pricing is justified or creates unfair outcomes for certain customer groups - Reviewing value assessments periodically, particularly when costs change or complaints indicate potential value concerns

3. Consumer Understanding: Firms must ensure their communications support customers in making informed decisions. This requires: - Testing whether key communications (product terms, risk warnings, fee disclosures) are actually understood by the target audience — not merely technically compliant - Tailoring the content, channel and timing of communications to the target audience - Avoiding jargon, complex language or small print that obscures material information - Providing information at the point when it is most useful to the customer's decision-making

4. Consumer Support: Firms must provide support that meets customers' needs throughout the product lifecycle. This requires: - Ensuring customers can access support through appropriate channels without unreasonable barriers - Providing the same quality and speed of service for claims, complaints and cancellations as for new sales - Identifying and responding to the needs of vulnerable customers - Removing "sludge practices" — unnecessary friction that deters customers from exercising their rights (e.g., making it easy to subscribe but difficult to cancel)

Fair Value Assessments

The fair value assessment is one of the most operationally demanding aspects of the Consumer Duty. The FCA expects assessments to:

Consider all elements of cost: - Direct costs (fees, charges, interest rates) - Indirect costs (opportunity costs, exit costs, ancillary charges) - Non-financial costs (time, effort, complexity)

Assess benefits received: - The quality and range of the product or service - The nature and quality of support provided - The reliability and accessibility of the product

Consider the target market: - Whether the product delivers value for all segments of the target market — not just the average customer - Whether certain customer groups (e.g., those less likely to claim or switch) receive disproportionately poor value

Benchmark where possible: - Compare the product's cost and features with similar products available in the market - Identify any outliers in pricing or features that require justification

Document the assessment: - The assessment must be a written document, approved at an appropriate governance level - It must include the methodology used, the data considered, the conclusions reached and any remedial actions planned

Board Attestation

The FCA requires boards (or equivalent governing bodies) to confirm annually that the firm has complied with the Consumer Duty. The FCA's expectations for board attestation include:

• The board should receive comprehensive management information on customer outcomes across all four outcome areas
• The attestation should be based on evidence — including compliance monitoring results, complaint data, outcome metrics and any thematic reviews conducted
• The board should constructively challenge the evidence presented and satisfy itself that the firm is genuinely delivering good outcomes
• Where the board identifies areas for improvement, it should ensure clear remedial plans with accountability and timelines
• The attestation should not be a one-off annual exercise — the board should receive regular updates on Consumer Duty performance throughout the year

FCA Supervisory Findings

The FCA's 2024 multi-firm review of Consumer Duty implementation identified several recurring deficiencies:

• Superficial fair value assessments — assessments that list features and costs without genuinely analysing whether the product represents fair value for the target market
• Sludge practices — firms that have not identified or removed barriers to switching, cancelling or complaining. Common examples include requiring phone calls to cancel subscriptions that can be purchased online, and lengthy hold times for complaints
• Inadequate vulnerability identification — firms relying on self-declaration by customers rather than proactively identifying signs of vulnerability through data, training and process design
• Documentation over action — firms that have created extensive Consumer Duty documentation (policies, frameworks, governance structures) without changing underlying business practices
• Insufficient outcome monitoring — firms that cannot demonstrate, with data, whether they are delivering good outcomes across all four areas

Practical Implementation Steps

1. Governance framework: Establish a Consumer Duty governance structure with clear accountability at board level. Designate a senior individual (typically the SMF16 or a dedicated Consumer Duty champion) with responsibility for coordinating implementation and reporting to the board.

2. Product and service review: Review every product and service against the four outcomes. Identify any products that are not designed for a clearly defined target market, that may not represent fair value, that are accompanied by communications customers don't understand, or that are supported by processes that create barriers.

3. Outcome metrics: Develop a suite of outcome metrics for each product and service. Examples include: - Customer complaint rates and themes - Product utilisation rates (are customers using the features they're paying for?) - Cancellation and switching rates - Customer satisfaction scores - Vulnerability identification rates - Time to resolve complaints and claims

4. Staff training: Train all customer-facing and product-design staff on the Consumer Duty requirements and how they apply to their specific roles. Training should be practical and include worked examples of good and poor outcomes.

5. Ongoing monitoring: Embed Consumer Duty monitoring into the existing compliance monitoring programme. Test not just whether policies exist, but whether they are producing good outcomes in practice. Use both qualitative reviews (file sampling, customer journey testing) and quantitative analysis (outcome metrics, complaint data).

6. Continuous improvement: The Consumer Duty is not a one-off implementation project. Firms must continuously monitor outcomes, respond to new FCA guidance and adapt their practices as customer needs and market conditions evolve.

Common Misconceptions

"We already treat customers fairly — the Duty doesn't change anything." The Consumer Duty is a higher standard than TCF. It requires firms to actively deliver good outcomes — not merely avoid causing harm. Firms that assume existing practices are sufficient without conducting a genuine gap analysis are likely to fall short.

"The Duty is primarily about documentation." The FCA has explicitly warned against treating the Duty as a documentation exercise. While documentation is necessary, the Duty requires changes in business practices where current practices do not deliver good outcomes.

"Fair value means lowest price." Fair value is not about being the cheapest. It is about whether the price charged is reasonable in relation to the benefits provided, the costs incurred and the target market served. A premium product can represent fair value if the benefits justify the price.