Platforms and governance: Consumer Duty Board Reports Mark 2

Effective governance has long been a key area of focus for the FCA as a conduct regulator, and for investment platforms. This was reiterated in the FCA’s supervision strategy for the platforms portfolio which set out clear expectations for governing bodies, covering: appropriate independent representation, the receipt of timely and appropriate management information about risks, and effective and rigorous oversight of issues within the firm.

The FCA continues to see failings in culture and governance as the root cause for failures of consumer protection and market conduct (Culture is contagious | FCA) and governance remains prominent in recent enforcement trends. You can read our latest digest of recent FCA enforcement cases here.

What has happened since the Consumer Duty came into effect?

Although significant time has passed since the Consumer Duty landed, its implementation is in some senses an iterative process. One aspect where this can be seen is the requirement for an annual board report. This requires governing bodies to review and approve a report setting out the results of the firm’s monitoring of consumer outcomes and any actions required as a result of the monitoring.

Given the deadline of 31 July 2024 for the first of these reports, many firms will now be facing the second iteration imminently. With a good practice and areas for improvement review published by the FCA, expectations from the FCA for good quality board reports second time around will likely be high.

Firms may therefore wish to remind themselves of some of the key points made in the FCA’s review in relation to the governance processes around the report:

Input from across the firm

The FCA looked favourably on input from relevant business areas, forums, and committees across the firm. This included evidence of the full involvement of second and third lines of defence, giving the firm’s governing body assurance about the content and conclusions of the report. The FCA was by contrast concerned with reports which appeared to be produced almost solely by compliance teams or a dedicated Consumer Duty function. However, it acknowledged that smaller firms may look to a knowledgeable ‘critical friend’ to provide impartial feedback on their approach to the Duty.

Challenge from the board

The FCA also welcomed details of board challenge either in the report itself or associated minutes. Appropriate scrutiny might take the form of requests for further information to demonstrate compliance or challenge to provide a clear plan to address particular issues, with actions allocated to senior management. The FCA was clear that the board should not be seen simply as a ‘rubber stamp’ for the report.

Conclusion

The FCA has been clear previously that firms which view the Duty as simply a change to governance and processes are unlikely to succeed in delivering good consumer outcomes (Implementing the Consumer Duty in the Consumer Investments sector). However, good governance remains essential to ongoing compliance with the Duty, with effective board reports resulting in agreed actions a crucial mechanism for this.