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Consumer Duty: Preparing for the inaugural annual board report

Thominah Talukdar


We are now six months post implementation of Consumer Duty meaning we are only six months away from the first annual board report – or sooner depending on your board’s schedule. This means firms should now be well into planning and preparing their first report for their board.

At Sicsic Advisory, we think about business sustainability from three lenses: commercial resilience, operational resilience and financial resilience. There are already established annual board assessment processes, insurers’ ORSAs, operational resilience self-assessment, and now the Consumer Duty annual board report. The same care and thought should apply to all.

You should be thinking about the content and format of your annual board report well ahead of the July 2024 deadline. In the FCA’s own words

“this will take time to do well, so don’t delay!”.

The annual board report will need to be a collaborative effort driven by the first line. Consider early “dry runs” which allow the report to be iterated. This will help identify gaps and issues, such as out of kilter data or tolerances and provide you with enough time to remedy these.

This is an important annual internal governance document and therefore should not be treated as a simple tick-box exercise to appease the regulator. That said there are some explicit requirements which do need to be met and you should ensure your board is equipped with the relevant information to be able to do this comfortably.

The report should provide a holistic view of the extent to which good customer outcomes are embedded in the rhythms and routines of BAU governance, oversight, and accountabilities. Where it is still embedding (likely to be the case for most firms), it should explain what steps you are taking to continue to embed the Duty across your business. The regulator is likely to ask for a selection of annual board reports to assess whether firms are complying with the Duty. However, the primary audience is the board, and the report should be designed to give the board the necessary comfort that the firm is adhering to its obligations under the Duty. The level and structure of information provided should be a key consideration: too much information will make it harder for the board to ask the right questions, while too little information will call into question the robustness of the report. Finding the sweet spot will require careful thought. Our view is that the core of the r report should be on outliers and what the firm is doing to address them.

We believe the annual board report is an opportunity to showcase your achievements and the journey you have been through over the past 18 months as a firm. However, we also encourage balance and transparency, particularly where you have identified issues through your gap analysis or assurance activity. A report which downplays your challenges and risks could come across as complacent. Where you have identified things that have gone wrong, it is important that you flag these in this report. This should include what you are doing or have done to remediate and rectify issues and most importantly what you will be continuing to do on an ongoing basis to avoid recurrences and ensure good outcomes are woven into the tapestry of your business and culture. Indeed, this is essential as the FCA requires the board to agree remedial actions.

One of the key aims of the Duty is to encourage firms to be forward thinking when it comes to good outcomes. This means being proactive and alert and identifying and preventing poor outcomes before they have the chance to crystallise. Even if you haven’t been written to directly by the Regulator, ensure that your compliance teams are undertaking a regular read-across of market developments and analysing how they may apply to you. We recommend these feature in your report to demonstrate how you have proactively factored these potential developments into your strategic thinking.

The focus of the report should be on outcomes rather than processes. As mentioned above, through this report, you will want to tell a narrative about the journey you’ve been on and how your focus is supporting good outcomes. Using case studies, anecdotes, real-life personal stories from customers, feedback on how customers have experienced a change in service could be a way to illustrate this. Firms should use qualitative data, not just quantitative data, to evidence how good outcomes are being achieved. We also encourage firms to consider including focus areas such as complaints, outcomes testing, and the outcomes for customers in different channels and journeys and customers with characteristics of vulnerability.

The FCA has vowed to become a data-led Regulator and expects firms to follow suit. Your annual board report will only be as good as your data. Reviews by 2LOD and 3LOD into primary data source and data accuracy will give the relevant SMF and the board necessary assurance that the data used is verified and accurate. Tolerance thresholds will also be a key area of judgement. We know from our engagement with firms, that six months on, data is still a real challenge for many, particularly where there are multiple legacy systems in play or complex governance structures which makes who should see what a challenge. Our advice? Be honest. These are not unique challenges – talk about your work arounds and how you are proactively taking steps to overcome them. MI is likely to be an iterative process, and the Annual board report should acknowledge this.

It may be tempting to reinvent the wheel and create something fresh and new for the first annual board report, however, we would urge you to consider your existing reporting cadence and build up on that. By leveraging the support of the Consumer Duty Champion early, they can also help you understand what the board will want to see.

Finally, once your first report is finalised and approved, build in time to reflect on the feedback of the board and any lessons. As with other aspects of the Duty, this is not a once and done task, it is an iterative process which will continually improve over time.

If you’d like to get a more detailed insight, please read our latest guide.

Sicsic Advisory is in a unique position to provide support with your Consumer Duty work. We have helped many clients with Consumer Duty implementation and have developed a deep understanding of the challenges firms face. We are ready to support you on assurance post-July 2023 and prepare you for the July 2024 deadline.

Our strong team of senior consultants have a blend of expertise, and includes financial services practitioners, former regulators with leadership roles in supervision and policy, and former trade body lobbyists.