FCA Publishes Good and Poor Practice on Consumer Duty Products & Services Outcome

FCA Publishes Good and Poor Practice on Consumer Duty Products & Services Outcome

The FCA has published yet another Good and Poor Practice paper in relation to the Consumer Duty, this time focusing on the Products and Services Outcome. This demonstrates the FCA’s commitment to communication and engagement with the industry providing valuable insight into what supervisory teams expect to see when assessing firms' product governance arrangements.

The findings are based on a review of 38 firms across banking, insurance, consumer finance, investments, payments and asset management, and provide practical examples of where firms are performing well – and where improvements are still needed.

Why this matters

The Products and Services Outcome requires firms to ensure that products and services are:

• Designed to meet the needs of a clearly defined target market.

• Distributed appropriately.

• Regularly reviewed throughout their lifecycle.

• Adapted where necessary to continue delivering good customer outcomes.

Although many firms have embedded Consumer Duty into their governance frameworks, the FCA's latest review demonstrates that implementation quality remains inconsistent. As has become common practice the paper provides a range of good as well as poor examples of practice identified by the FCA, this article summaries the key points.

The FCA's examples of good practice

1. Better understanding of customer needs

The strongest firms start product development by thoroughly understanding their customers.

Rather than simply describing a target market, they actively research the customer’s objectives, likely behaviours, financial capability (including understanding), vulnerability considerations and inherent product risks. Ultimately this is about truly understanding the characteristics of customers and the harms that could occur to those customers based on the customer’s characteristics.

These firms can clearly demonstrate how customer insight has influenced product design, eligibility criteria and customer journeys.

2. Target markets are specific—not generic

One recurring theme is that successful firms define target markets with sufficient detail.

Instead of broad statements such as "Suitable for retail customers" firms should identify customer characteristics, financial circumstances, knowledge and experience, risk appetite, vulnerability considerations as well as customers for whom the product is unsuitable. All of this allows firms to evidence why the product is appropriate for that particular group.

3. Ongoing monitoring throughout the product lifecycle

Good firms do not treat product approval as a one-off exercise.

They continuously monitor customer outcomes using management information such as:

• complaints

• cancellations

• arrears

• claims data

• customer feedback

• behavioural data

• sales quality indicators

Importantly, they use this information to trigger reviews where customer outcomes appear to be deteriorating.

4. Distribution strategies are tailored

The FCA also praised firms that actively considered how products were distributed.

Key examples in the report include:

• selecting appropriate distribution channels for different customer groups

• ensuring vulnerable customers could access alternative communication methods

• adapting digital journeys where necessary

• working collaboratively with distributors to improve customer outcomes

Areas where the FCA found weaknesses

The report also highlights several common shortcomings that firms should address, often the polar opposite to the good practice examples.

Generic target market statements

One of the most frequent issues was overly simplistic target market definitions, unfortunately this is an issue that has been raised several times by the FCA previously, if there’s one area to focus on it should be this!

The FCA said that some firms described products as suitable for "all retail customers" without demonstrating why. As explained in the good practice example, the expectation (and practical need) is for target market statements to be granular to enable a proper understanding of typical customer support / communication needs.

Additionally, the FCA highlighted that where products carried higher levels of risk, firms often failed to explain why those risks remained appropriate for their intended customers.

Focusing only on identifying vulnerability

Many firms demonstrated good processes for identifying vulnerable customers but struggled to explain what happened afterwards, a problem we often see in the industry as well. It’s important to understand that simply applying a vulnerability flag is not enough, firm’s must show how products, communications or support have actually been adapted to meet customers' additional needs.

Over-reliance on complaints data

Some firms—particularly smaller firms—relied almost entirely on complaints as evidence of customer outcomes. Whilst it is a good starting point the FCA notes that complaints represent only one source of information. After all many poor customer outcomes never result in a complaint, meaning firms risk missing emerging issues if they rely solely on complaint volumes.

A broader suite of outcome-based MI is therefore expected.

Limited use of management information

Several firms collected extensive MI but failed to use it effectively. Rather than identifying trends and taking proactive action, some organisations treated MI as a reporting exercise rather than a decision-making tool. Under the Consumer Duty, firms should actively use management information to identify foreseeable harm and intervene where necessary.

Practical actions firms should consider

Following the FCA's publication, firms may wish to review:

• Whether target market statements are sufficiently granular.

• How vulnerability considerations influence product design.

• Whether product reviews are genuinely outcome-focused.

• The quality and breadth of product governance MI.

• Distribution arrangements and oversight of third parties.

• Board reporting on Products and Services outcomes.

For many firms, this publication provides a useful benchmark against which existing Consumer Duty frameworks can be tested.

How RB Compliance Consultancy can help

At RB Compliance Consultancy, we help FCA-regulated firms design and review Consumer Duty frameworks that are proportionate, practical and aligned with regulatory expectations.

Whether you need an independent review of your product governance framework, assistance with Consumer Duty board reporting or practical support implementing improvements, we can help.

We also provide:

• Consumer Duty training

• Product governance reviews

• Consumer Duty board report reviews

• Compliance audits

• Practical Consumer Duty templates and guidance

Need support? Contact us today to discuss how we can help ensure your products and services continue to deliver good customer outcomes while meeting the FCA's evolving supervisory expectations.