The FCA issued key findings from its review of payments firms’ implementation of the Consumer Duty on 7 October 2024. The review assessed how firms had considered the Duty’s requirements and specific payments sector risks (as set out in the FCA’s February 2023 Dear CEO letter), and how they had addressed any gaps.
The FCA found that just under half of the firms reviewed had only partially implemented the Consumer Duty and required significant work to comply with it. According to the FCA, a substantial minority of payments firms may not be compliant with the Duty.
The Consumer Duty came into force for open products and services on 31 July 2023, and for closed products and services on 31 July 2024.
The review is based on work carried out by the FCA from January 2024 with 23 payments firms. While the FCA observed some instances of good practice, it found just under half of the firms presented either a moderate or higher risk of delivering poor consumer outcomes.
Approach to implementation
Some firms did not recognise the higher standards the Consumer Duty requires of their business, or suggested that they did not need to make changes to comply with the Consumer Duty requirements. These firms tended to rely on pre-existing processes and controls and had not defined their target market or set out the good consumer outcomes they wanted to deliver.
The best firms tended to have clearly articulated customer-centric purposes, well defined good outcomes and foreseeable harms for their customers, and strong governance and control frameworks.
Products and services
The FCA expects firms to specify the target market for their products to a sufficiently detailed level, taking account of the characteristics, risk profile, complexity and nature of the product. Firms are also responsible for the actions of their agents and distributors.
The FCA is concerned that target markets may be set too widely, potentially undermining firms’ ability to identify the true risk of their product or service, and resulting in poor outcomes for consumers. Some firms had not adapted their monitoring processes to be able to demonstrate that their agents were complying with the Consumer Duty.
Fair value assessments
The Consumer Duty requires firms to ensure, through assessments, that their products provide fair value to retail customers. The FCA found that many fair value assessments fell short of its expectations. For instance, some firms limited their value assessment to price comparisons only and did not sufficiently consider non-financial benefits, such as the level of consumer support provided.
Consumer understanding
The FCA expects firms to support their customers and their understanding, to enable them to make informed decisions about financial products and services.
The regulator saw examples of good communications to retail customers which were tailored to the customer, the complexity of the product, and the communication channel used. However, the FCA also noted examples where firms had not carried out adequate pre-testing of consumer communications, and found that monitoring of consumer understanding after communications were sent was limited.
Consumer support
Under the requirements, firms should provide support that meets their customers’ needs. The FCA identified unclear signposting of some customer support services, risking customers not being able to access these services. In some firms, the volume of complaints suggested shortfalls in delivering support that met customers’ needs. A common source of complaints from customers of e-money firms relates to a lack of communications from firms when their account had been frozen.
Governance
The requirements should be embedded in firms’ governance, strategies, people policies and incentives. Firms need to be able to demonstrate that their management and Board appropriately consider Consumer Duty matters.
The regulator looked at what information was given to the firm’s Board or senior governing committee about Duty implementation, and the degree of challenge over it. It did not see much challenge to Duty implementation reflected in the Board or senior governing committees’ minutes.
Some firms changed their people policies, for instance by introducing additional staff training around vulnerable customers. But the FCA noted less evidence that firms had challenged whether remuneration and incentive policies could lead to foreseeable harm.
Management Information
A key part of the Consumer Duty is that firms assess, test, understand and evidence customer outcomes. According to the FCA, creating a robust and sustainable MI suite was the biggest challenge for many firms. Difficulties included identifying a meaningful set of metrics which were directly relevant to the Duty outcomes, could be collected regularly, and were linked to the evaluation and decision-making process.
Fully assess the review findings, including the good and bad practice examples listed by the FCA.
Take prompt action to assess and address any gaps and implement mitigation programmes.
All firms should expect the FCA to continue regularly evaluating compliance with Consumer Duty expectations, especially in view of increased obligations related to Authorised Push Payment scams.
The FCA expects companies in the payments industry to maintain strong controls, ensure that they consistently provide good consumer outcomes, and promptly address any deficiencies when they arise. And while the regulator’s outcomes-based approach is designed to encourage healthy competition and innovation, firms also need to take the new expectations seriously.
Firms can take a proportionate approach in their implementation, but they must still address all relevant areas of their business, even if they serve only a small number of retail customers. The review findings show that many firms need to take further steps to fully integrate the Consumer Duty, and should act on the findings immediately.
Firms need to demonstrate that their Boards regularly consider and challenge the extent to which they are delivering good consumer outcomes and remediate any shortfalls.This is not a ‘tick box’ exercise, requires board-level sponsorship and engagement, and should positively impact throughout the business. The FCA will request evidence of Boards’ involvement in its future reviews and, in a case of serious non-compliance, could take action, including restricting firms’ business.
“Our work indicates that many firms need to take additional action to fully embed the Duty, and they should do so without delay.”
The FCA will continue to monitor how firms are meeting the Consumer Duty standards, and take appropriate supervisory actions where necessary. It has given sample firms individual feedback, and expects them to deal with any identified implementation gaps promptly.
The FCA published a collection of insights on the price and value outcome from its first year of supervising firms against the higher standards of the Consumer Duty, on 18 September 2024. It also published a comprehensive update on its work on fair value in cash savings.
The FCA published findings of a multi-firm review of outcomes monitoring under the Consumer Duty, focusing on the insurance sector.
PwC’s summary of the FCA’s Consumer Duty closed book Dear CEO letters.
