FCA provides examples of best practice under the Consumer Duty for Annual Reports and Complaints Root Cause Analysis
23 January 2025
On 11 December 2024, the FCA published two reports on how firms approached their first annual Consumer Duty Board reports (report 1), and complaints root cause analysis (RCA) (report 2). These followed a request from firms for the FCA to more regularly publish thematic examples of good practice and areas for improvement under the Consumer Duty.
The Duty came into force on 31 July 2023 for open products, and 31 July 2024 for closed products. Firms are required under the Duty to prepare an annual report for their governing body setting out the results of their monitoring of consumer outcomes and any actions that need to be taken as a result of the monitoring. An area of best practice for the monitoring section of the report is an evaluation of the root cause of poor outcomes. The FCA considers that the RCA can assist firms in identifying harms, delivering good outcomes and helping shape the annual Board reports.
The FCA reviewed the annual reports of 180 firms of different sizes, and found that the best reports were structured in a way that allowed their boards to easily scrutinise key elements that should be covered under the rules. From a review of 40 firms' use of RCA, the FCA identified that best practice includes having in place good complaints management information (MI) and clear governance structures.
The FCA does not expect the Consumer Duty annual reports to be prescriptive in terms of what board reports and RCA must look like, and do not replace the standards expected under the Duty itself. The FCA is sharing examples of good and poor practice to assist firms in deciding what works best for them in their implementation of the Duty.
We have prepared checklists below for firms to reflect on whether their annual Board report and RCA processes are aligned with the FCA's ideas of best practice. We have consolidated the FCA's "areas for improvement" into the areas of best practice in order to create a streamlined checklist. These checklists can be used as an additional resource for firms but should not be used to replace the rules and guidance set out under the Consumer Duty.
| Checklist for Consumer Duty Board Reports | |||
Key area | Area of best practice | Included (Y/N)? | Areas for improvement |
Report governance | Produced with clear involvement, input and scrutiny from:
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Report or associated minutes includes details of:
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As a whole, the report brings together relevant data and insights on retail market activities to assess whether customers are receiving good outcomes. | |||
Monitoring and outcomes | Clear definitions of good outcomes across different products and services (e.g. some illustrative examples), that can be tested against the available MI. | ||
Use of a range of quantitative and qualitative data from internal and external sources, including comparator and benchmarking data in their reports, covering each of the four outcomes. | |||
Relevant thresholds for monitoring MI (perhaps including RAG ratings), with well-reasoned justifications for such thresholds. | |||
Clear commentary included alongside the data, drawing conclusions based on the data and explaining risks identified across the business. | |||
Use of some or all of the following data:
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For the Price and Value outcome:
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A track of how each customer group receives different outcomes, including different characteristics of vulnerability (i.e. this is not treated as a "catch-all" category). | |||
Details how target markets are determined, profiles for customers falling into the target market cohorts and shows the board how they were receiving good outcomes. | |||
A clear overview of third-party relationships and how relevant information is shared and received across the distribution chain to monitor good outcomes through outsourced consumer support. | |||
Evidence of poor outcomes and gaps in data, with plans for improvement. | |||
Actions taken to comply with duty obligations | Illustrative examples of how action has been taken to address risks and issues, and evaluating the effectiveness of these actions (supported by metrics from monitoring). | ||
The examples and evaluations cover specific actions related to customers with characteristics of vulnerability. | |||
An overview of actions taken to ensure compliance with Duty for closed products and services. | |||
All actions identified are clear in terms of purpose, actions, responsibility for those actions, timescales and data to be used to evidence good outcomes. | |||
Evidence how actions taken have been effective. | |||
Future business strategy | Examples of how the Duty is incorporated into business strategy and purpose, and detailing amendments made to build in the Duty outcomes. | ||
Demonstration of how the strategy would ensure customers receive good outcomes in the future. | |||
Examples of "people" initiatives taken to ensure the Duty is embedded in the culture, including training, influence from senior leaders, remuneration practices, and performance management. | |||
Description of new governance structures in place to ensure ongoing compliance with the Duty. | |||
Identification of bodies committed to monitoring outcomes for customers with characteristics of vulnerability. | |||
Illustrates how new committees fit into existing structures and processes. | |||
Plans with actions that are specific and measurable, have a clear owner/accountable executive and a delivery plan which is tracked through appropriate governance channels. | |||
Checklist for complaints and root cause analysis | |||
Key area | Area of best practice | Included (Y/N)? | Areas for improvement |
Complaints data / management information | Use of dashboards setting out management information (MI) to help track outcomes and identify harm. For example, an enhanced complaints MI dashboard could link data (including complaint volumes, complaint outcomes, FOS complaints, quality assurance and complaints from customers with characteristics of vulnerability outcomes) back to the Consumer Duty outcomes. This allows for deeper analysis of complaints’ root causes related to products and helps to develop heatmaps to highlight priority areas of focus. | ||
Use of data packs with a range of data points and setting out the root causes of complaints and actions taken. For example, firms could look at FOS complaints that were not upheld to understand what drove complaints even when the outcome to the complaint was judged to be fair. | |||
Complaints metrics and data are sufficiently granular to capture outcomes for different groups of customers, including consumers with characteristics of vulnerability. | |||
Use of other sources alongside own data to identify potential harms and common themes, such as social media feedback, FOS decisions, FCA letters and industry news. | |||
Root cause analysis | Use of a framework for carrying out RCA, set out clearly in policy/process documents. | ||
Ensuring the RCA process is sufficiently granular to effectively identify trends and systemic issues. | |||
Complaints data reports both allow for operational discussions (for example, to ensure the firm has the right resource to answer complaints) and also for consideration of how the data can inform improvements of customer outcomes. | |||
Following RCA, creation of an action plan with clearly designated owners, expectations, deadlines and remediation actions. | |||
Expansion of responsibility of RCA beyond complaints team and across the firm (such as front-line agents and risk teams). | |||
Evaluation of the effectiveness of action plans and examples of how this was measured. An example was given of the "Five Whys" problem-solving technique. | |||
Having monitoring systems in place, and evidencing the changes made as a result of identifying harms through RCAs. | |||
Ensuring that the actions and changes made ultimately result in better customer outcomes. | |||
Governance | Evidence of clear escalation routes, accountability, and responsibility for driving forward action and/or change. | ||
Ensuring those responsible for complaints are receiving the right information or insights to enable effective decision-making, including making appropriate changes to processes or systems to reduce the likelihood of complaints and improve outcomes for customers. | |||
Making any necessary changes for teams to work together more closely to understand complaints data and where and how to take action, and demonstrating this integration. | |||
Having Consumer Duty as a standing agenda item at committee meetings where any new material issues, potential harm or notable complaints were raised. | |||
Escalation to senior management and again to compliance/risk teams or the Board if further decision making is required. An example was given of one firm capturing systemic complaint issues in a weekly MI email sent to its risk committee members and executive-level management, allowing for real time oversight and timely action. | |||
Having an appropriate threshold approach to reporting lines, to consider the severity of an issue when determining escalation. | |||
Presentation of data dashboards packs at committee and Board meetings with evidence of challenge and scrutiny. | |||
Having good policy documents that are interactive, engaging and informative, giving examples of common situations to equip staff to know how to handle a situation or process. | |||
Organising working groups to discuss issues faced by customers with characteristics of vulnerability, and/or monthly meetings to review existing governance documents and update policies to help address issues raised. | |||
Hosting mandatory training with interactive examples of common scenarios, and offering refresher courses. | |||
