"With the FCA watching, it’s important that board reports demonstrate a developmental mindset with customer outcomes at their heart."
It’s the final countdown to the 31 July deadline for firms’ first Consumer Duty board reports. For the FCA this isn’t just an attestation. It’s a “really important” piece of internal governance. It enables boards to set strategy and assure themselves that their firms are delivering the right consumer outcomes.
With the FCA redoubling its focus on consumer protection, it is crucial to firmly grasp – and meet – the FCA’s expectations here. So let’s explore some key steps that firms are taking to make their first board reports a success and set themselves up for effective successive board reporting cycles.
A vehicle for FCA scrutiny
The FCA introduced the Consumer Duty to require firms to deliver good outcomes for customers.
It requires firms to prepare a board report annually, setting out the results of its Consumer Duty monitoring and any actions required as a result of the monitoring. Boards must approve these reports.
The FCA’s own executive director of consumers and competition, Sheldon Mills, says the FCA will look to firms’ board reports as evidence of “the steps firms are taking to drive good outcomes”. The FCA will ask firms for their board reports, review them and publish findings on good practices.
With the FCA watching, it’s important that board reports demonstrate a developmental mindset (more on this shortly) with customer outcomes at their heart.
Keeping boards’ needs in mind
A board report should equip boards to exercise independent scrutiny and challenge.
So firms are preparing reports with their boards in mind. The Consumer Duty requires boards not only to approve reports, but also to confirm that their firms are Consumer Duty-compliant, agree any remedial actions and review and, if necessary, adjust their firms’ business strategies. So, the better board reports will cover these aspects alongside the results of firms’ Consumer Duty monitoring.
A board report is evidence-based. It adopts a structure that addresses all aspects of the Consumer Duty, with findings supported by the information that has been gathered and the management information (MI) that the firm has generated.
A comprehensive and holistic approach is called for. Whether reporting is done on a function-by-function, product-by-product or rule-by-rule basis, firms are sense-checking their reporting to ensure all aspects of the Consumer Duty rules are covered.
An effective board report often engages in layering. A lengthy report may be less useful to the board. But the board may need underlying detail to engage in adequate scrutiny and challenge. So, a board report might include an executive summary to set out key points; a main body which outlines the primary findings; and annexed underlying material (such as MI, policies and minutes) for the board’s use if needed.
Context is important. Better reports describe the process undertaken to prepare them and set out any limitations to the work (for example, where information wasn’t available). And for this first report, greater detail may be included about your firm’s initial Consumer Duty implementation efforts and its ongoing implementation roadmap.
A developmental mindset and cultural embedding
The FCA wants firms to adopt a developmental mindset.
The board report is a good opportunity to set out your firm’s ongoing process of improvement and development, to describe what has changed in the firm as a result of the Consumer Duty and to identify the firm’s focus areas for Consumer Duty implementation for the coming year.
It is also a good opportunity to show how the Consumer Duty is embedded within your firm’s culture at all levels.
Involving key stakeholders
It’s vital to get the right people involved in preparing your report.
What this looks like varies from firm to firm. But the first line of defence will often have ownership and accountability for report preparation, given its central BAU role in Consumer Duty compliance.
The second line may be involved in those report sections dealing more squarely with policy, process and governance. And members of relevant governance forums, such as product committees, may be looped in as relevant.
Effective board report preparation workstreams have looped in the firm’s Consumer Duty board champion early and throughout on an iterative basis. The champion has a non-executive role to facilitate meaningful discussion and challenge at board level. From the outset, they help those preparing the report to shape a report that most closely meets the board’s needs. Champions are mindful to avoid straying into an executive role, but are very useful on a consultative basis.
Deploying MI effectively
Board report preparation involves finding and deploying the MI and data your firm has collected throughout the year to support the findings and recommendations in the report.
And better board report processes involve an interrogation of the completeness and quality of the underlying data. This allows any limitations to the MI to be expressed clearly in the report. It is helpful to involve monitoring teams to get this aspect of the report right.
The FCA suggests that firms draw upon a range of data sources to make their findings more robust.
The overarching goal is to deliver a report substantiated by MI and data, from which the board can obtain confidence about the findings within it and certainty about any limitations.
Preparation – and reward
Delivering your first Consumer Duty board report requires careful planning, robust fact-finding and collaboration across stakeholders and functions. The pay-off: a chance to put your best foot forward to the FCA, deliver valuable support to your board and help the board provide important direction for your firm’s Consumer Duty compliance journey for the year ahead. An opportunity that firms are seizing.
