FCA Review of Outcomes Monitoring
On 26th June, the FCA published its “Insurance multi-firm review of outcomes monitoring under the Consumer Duty”.
In this article, Nigel Sydenham outlines some of the key takeaways from this review, including the FCA’s expectations regarding outcomes monitoring and how this information can be applied across firms.
Background
“If you’re not in the insurance sector you might be tempted to dismiss the review as being irrelevant, but that would be a mistake.” – Nigel Sydenham
The review findings are based on work which the FCA commenced in December 2023, when it asked twenty larger insurance firms about their board and committee reporting.
The first point to make is that it’s important not to be too distracted by the title of the review. If you’re not in the insurance sector you might be tempted to dismiss the review as being irrelevant, but that would be a mistake – almost all of the review findings apply across all sectors.
Secondly, firms are expected to meet their obligations under the Consumer Duty in a proportionate way. In other words, if you are a smaller firm, you would not be expected to replicate all of the work undertaken by larger firms, but there is still lots to learn from the review.
Key Messages
The review findings run to twenty pages of text and they repay careful reading. However, amidst the detail (some of which is specific to the insurance sector) it’s possible to identify several key messages.
1. The ‘Causal Chain’
Comprehensive and effective outcomes monitoring is part of a series of related steps or actions (which the FCA refers to as a ‘causal chain’):
- Clearly defined customer outcomes
- A suite of metrics chosen to monitor those outcomes
- Identification of poor or potentially poor outcomes
- Investigation and, where needed, actions taken
- Evaluation of customer outcomes using targeted metrics
In other words, outcomes monitoring cannot be considered in isolation – each of these steps is necessary for it to be effective.
2. Process is important, but is not the ultimate focus
“While procedures and processes are important, on their own they do not indicate whether customers have experienced good outcomes.” – Nigel Sydenham
The review found that, in some firms, outcomes monitoring focused too much on the question of whether particular processes (such as product reviews) had been completed.
While procedures and processes are important, on their own they do not indicate whether customers have experienced good outcomes.
3. The right data
“Good practice is to start by asking what data the firm needs to be able to identify outcomes, regardless of whether or not this data is already available.” – Nigel Sydenham
Firms need to think carefully about the data they use for outcomes monitoring.
As noted above, this data should not focus primarily on process completion – instead, firms need to identify a range of metrics which will give them real insight into customer outcomes.
Unsurprisingly, given its significance, the review has a lot to say on this topic but, in particular, firms need to avoid simply repackaging existing data. Rather, good practice is to start by asking what data the firm needs to be able to identify outcomes, regardless of whether or not this data is already available.
Additionally, the findings highlight examples of data which are unlikely to facilitate review and challenge. This includes, for example, thresholds which are arbitrary or so low that they are unlikely to ever be breached – resulting in a permanent ‘green’ status in reports.
The review also highlights an over-reliance on complaints data. While such data is important, there are many contexts in which customers may not complain even if they experience a poor outcome.
4. Differences in outcomes
The FCA has repeatedly made clear that it expects firm monitoring of outcomes to identify whether any groups of customers (including those who are vulnerable) experience worse outcomes than others. However, the findings report that some firms had limited monitoring of outcomes for different groups of customers and, even where it did exist, such monitoring was often inadequate.
In one sense, this finding is unsurprising, since many firms have found this requirement to be a challenging one. However, despite the practical issues that may arise, firms need to recognise that this is a regulatory priority and think carefully about how they can identify differences in outcomes across their customer base.
5. Scrutiny and challenge
Finally, it is important to recognise that the end goal of outcomes monitoring is not the production of a clearly presented report, full of relevant and robust data (important though this may be). Rather, the purpose of the exercise is to be able to identify the outcomes being experienced by customers, and to take remedial action where there is evidence of poor outcomes or consumer detriment.
Scrutiny and challenge, particularly at board level, is a vital component in this process and should be reflected in board/committee reporting.
Conclusion
“Firms need to be continuously learning and improving.” – FCA
The FCA has repeatedly emphasised that the Consumer Duty is not a ‘once and done’ exercise, rather firms need to be continuously learning and improving.
The findings of this review are an important indicator of the FCA’s expectations regarding outcomes monitoring and firms should consider carefully how to apply them in their own context.
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About the Author
Nigel specialises in training boards, senior executives and other staff on the impact of regulation and regulatory change.
He is a CFA Charterholder and Chartered Fellow of the CISI, with over 20 years' of industry experience.
With a background in compliance in private banking and wealth management, Nigel has a particular interest in effective corporate governance and the management of compliance and regulatory risk. His interests also include issues relating to ESG and climate risk, conduct and culture (including non-financial misconduct), and all aspects of financial crime prevention, as well as the impact of fintech on compliance and regulation.
Recent assignments have included briefing multiple boards and executive teams on the Consumer Duty, delivering compliance and ethics training for senior managers and front-office staff and creating a user-friendly risk and compliance handbook for a major bank.
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