The FCA’s Consumer Duty rules represent a significant shift in the regulation of financial services, requiring firms to place customer outcomes at the heart of their operations.
With closed products brought into scope from 31 July 2024, the regulator is now focused on ensuring that firms take active steps to assess, monitor and adapt their practices. Recent communications from the FCA – including targeted ‘Dear CEO’ letters and follow-up reviews – reinforce the need for firms to fully embed the Duty in their approach to product design, governance, and customer interaction.
Whether you're grappling with gaps in outcome monitoring, challenges around product suitability or the need for board-level engagement, our financial services solicitors can work with you to meet your obligations under the Duty. We support firms in interpreting the rules, refining their internal frameworks, and ensuring that governance and processes are aligned with the FCA’s expectations – and capable of evolving as those expectations shift.
Contents:
What is the Consumer Duty?
The 'Consumer Duty' requires that regulated firms (and certain other entities in the 'supply chain') take on a new level of responsibility for the outcomes experienced by retail customers when dealing with and buying products from them.
What does it involve?
This “new level of responsibility” requires firms to take into account 3 cross-cutting rules which set out how they should act to deliver good outcomes for retail customers:
- Avoid causing reasonably foreseeable harm to retail customers.
- Take reasonable steps to enable retail customers to pursue their own financial objectives.
- Act in good faith towards retail customers.
The FCA intends that these actions will lead to 4 key outcomes for customers:
- Products and services are designed to meet the needs, characteristics, and objectives of customers in the identified target market.
- Prices of products and services that represent 'fair value' for customers.
- Clear communications promote consumer understanding, enabling retail customers to make informed decisions about their financial products and services.
- Customer support that meets the needs of retail customers and avoids putting obstacles in the way of their wishes (such as slow response times or high exit fees leading to customer inertia).
Who does it affect?
The rules apply to all FCA-regulated institutions, but they also extend beyond direct consumer interactions to include entities in the 'supply chain', such as intermediaries, asset managers and insurance companies – even if they do not deal directly with consumers.
FCA insights on Consumer Duty implementation
In its October 2024 review of Consumer Duty compliance, the FCA observed notable improvements in how firms embed the Duty. The review asserted that the Consumer Duty has driven notable improvements in consumer protection, with many firms adopting more customer-focused practices and embedding the Duty into their governance and operations.
However, the FCA has flagged ongoing challenges, particularly in areas such as designing products that meet diverse consumer needs and ensuring the fair treatment of vulnerable customers. The review also highlighted gaps in firms’ monitoring and reporting mechanisms, which need to demonstrate better how they deliver good customer outcomes.
The FCA reiterated that while progress has been made, continuous effort is required to address these shortcomings and fully embed the principles of Consumer Duty across all areas of operation.
Recommended good practices
The FCA highlighted the following as examples of ‘good practice’:
- Customer-focused product design: Firms actively engaged with customer feedback to design products that meet specific consumer needs, particularly for vulnerable groups.
- Clear communication: Companies improved customer understanding by simplifying terms and conditions and ensuring information was tailored and accessible for all customer segments.
- Proactive support for vulnerable consumers: Some firms implemented dedicated teams or enhanced training programs to ensure staff could effectively identify and support customers in vulnerable circumstances.
- Outcome monitoring: Firms that demonstrated strong practices regularly assessed their services to confirm they delivered fair outcomes and transparently reported findings to senior management.
- Integration of Consumer Duty in governance: Leading firms embedded the Duty into their decision-making processes, including appointing board champions and conducting regular reviews of Consumer Duty compliance. As of 27 February 2025, appointing a board champion is no longer a requirement, but it may still be viewed favourably when applied to embedding the Duty in other areas of operation.
Areas for improvement
While noting that progress has been significant, the FCA has identified several areas that require further attention:
- Product and service suitability: Some firms have struggled to design products and services that genuinely meet the diverse needs of their target customers, particularly those who are vulnerable.
- Monitoring and evidence of outcomes: Gaps were identified in firms’ ability to monitor and demonstrate how their actions deliver good consumer outcomes. Many firms lacked robust data or systems to effectively evaluate this.
- Fair value assessments: The FCA found inconsistencies in how firms assess and document whether their products and services provide fair value to customers.
- Governance and accountability: In some cases, firms had not sufficiently embedded Consumer Duty principles into governance structures or ensured that senior management was accountable for their implementation.
How to achieve Consumer Duty compliance in your firm
Here are some essential actions to ensure that Consumer Duty is embedded into your firm’s approach and that you align with the FCA’s recommended practices:
- Conduct regular reviews of your procedures and policies related to products, focusing on assessing and evidencing their fair value to consumers.
- Provide enhanced training for staff to ensure they understand Consumer Duty requirements and can consistently apply them, particularly in customer interactions.
- Strengthen systems for collecting and analysing data to assess whether customer outcomes align with the Duty’s standards.
- Develop and implement targeted processes to identify and support vulnerable customers, ensuring their needs are addressed at every stage.
- Ensure cooperation between your project and business teams.
The FCA's feedback highlights key areas of focus: improving data and monitoring, proactively resolving issues, and embedding a deep understanding of Consumer Duty across all levels of operation. Continuous review and adjustment will be essential.
Consumer Duty as a strategic commitment
Fulfilling your responsibilities under Consumer Duty is not a one-off compliance task. It requires continuous alignment between customer needs, product design, fair value assessments and governance structures. As the FCA continues to refine its supervisory focus, the most resilient firms will be those that treat Consumer Duty as a strategic commitment, not just a regulatory requirement.
If your firm is facing challenges in evidencing good outcomes, designing suitable products, or developing the systems and reporting required to demonstrate compliance, our financial services solicitors can provide practical, commercially focused support. We help regulated businesses embed the Duty into their policies, processes and culture, so they can confidently demonstrate fair treatment of customers and withstand regulatory scrutiny.
