The Consumer Duty has shifted the dial in terms of how the financial sector considers and approaches customer outcomes. Historically, firms needed to show that their actions didn’t result in poor outcomes or actual harm to consumers. Now, firms must demonstrate that they’re proactively seeking and delivering them, with meaningful interventions to address shortcomings.
But that’s easier said than done. With non-prescriptive, principles-based rules, there’s room for subjectivity. So, it can be tricky to work out what good looks like – and crucially, how to demonstrate it. As such, it’s essential to create a framework that can assess every step of the customer journey and tangibly measure, track, and evidence whether good outcomes are achieved. Firms that do this successfully can leverage the Consumer Duty as a key driver of sustainable growth.
FCA supervisory activity over the Consumer Duty
The FCA sees the Consumer Duty as a once-in-a-generation, flagship initiative and a new philosophy for consumer protection. As such, the regulator is using it to assess a wider range of issues. This is evident through high-profile thematic or multi-firm reviews, as well as individual assessments, to understand how well the market is operating. Despite tough growth agendas, this focus will most likely continue, with a good deal of regulatory simplification deferring to the Consumer Duty.
While early assessments focused on basic implementation, the FCA’s now looking at the depth of firms’ understanding of the Consumer Duty, and subsequent effectiveness. This includes examining the quality of product and service reviews, checking fair value assessments, and scrutinising outcomes testing and customer support. It’s particularly interested in how firms measure and address shortcomings around customer outcomes and experience.
FCA guidance on product governance and fair value assessments
Product governance work focuses on the fundamental question, ‘does this product or service continue to be likely to offer good outcomes and fair value to a defined target market of consumers?’
Consumer Duty board reporting requirements and management information expectations
Firms need appropriate management information (MI) to demonstrate whether customers are receiving good outcomes. This includes data on quality, analysis of different customer types and a comprehensive view across distribution and outsourcing chains. The data must support declarative statements over customer outcomes, with clear rationale and analysis, and it must inform the Consumer Duty Annual Report. The FCA published additional guidance for annual board reporting requirements in December 2024, and it's essential to use this to develop the robust reporting processes to support the board.
Supporting vulnerable customers under the FCA Consumer Duty framework
While the ability to identify and quantify customer vulnerability is a must, the FCA believes consumers get better outcomes if they can explain their circumstances. So, it’s good practice to directly ask customers about their support needs or preferences, or create an easy dialogue for customers to volunteer that information. Firms can use this information to infer actual or potential vulnerability using certain indicators or markers, without explicitly discussing vulnerability with the customer. This will help firms scale up support and improve the potential for good customer outcomes and experiences.
It's also important to note that some products will cater to a specific target market, which may be more inherently likely to include customers with certain characteristics of vulnerability. For example, claimants under protection or funeral products are likely to be vulnerable, and customers of retirement planning products are inherently more likely to experience ill health. Firms should factor in the product’s purpose and features into the design of the communications and support services, with appropriate staff training in place.
Providing effective consumer support and boosting understanding
Looking beyond vulnerable customers specifically, the FCA published the Consumer Support survey results in March, highlighting the need to proactively identify customer requirements and offer support. Crucially, this includes measuring customer support uptake and demonstrating that it resulted in a good outcome. Supporting data could include complaints or net promoter scores, but the FCA wants firms to use more data from customer interactions. For example, call response times, use of ‘help’ options in digital journeys, customer feedback on communications, and outcomes testing.
The FCA is becoming more interventionist regarding the quality and timeliness of firms’ communications, so they need to demonstrate that consumers genuinely understand the information they receive throughout the product lifecycle.
Good practice for customer outcomes testing and monitoring
The FCA is concerned that firms equate data on the application of processes or controls with proof of good customer outcomes. Firms need to supplement this data with activity that tests real-life outcomes and compares them to definitions of good outcomes. These activities can contribute to (and challenge) the MI for a more accurate view of outcomes.
To achieve this, firms can sample appropriate and representative groups of customers to test whether a product or service met the intended goals, in practice, for those customers. Sampling could look across the whole product lifecycle for end-to-end testing, or offer a point in time view – for example, following an investment, a withdrawal, or a particular journey, such as a bereavement or an insurance claim. Firms could also take a thematic approach, by sampling customer sub-sets for a specific product to understand their collective experiences.
The FCA has conducted multi-firm thematic work on the effectiveness of firms’ outcomes monitoring, and further work is likely in the future.
How to demonstrate fair value under Consumer Duty in 2025
With the above supervisory priorities in mind, demonstrating fair value is one of the biggest practical challenges. Firms need to think about what constitutes value – essentially, the relationship between charges paid and benefits received, for that specific product (or group of products).
Fair value is at the heart of the FCA’s agenda, as demonstrated through the ongoing Premium Finance and Pure Protection market studies. However, demonstrating fair value can be tricky. Not least because the FCA has deliberately not been prescriptive about what constitutes fair value, or mandated how firms should consider this. Instead, it asks firms to take a proportionate and reasonable approach, supported by holistic and evidence-based assessments. But what does this mean in practice?
Identifying the target market is crucial to offering fair value
Firms need to clearly identify the target market for any given product or service, with a differential outcomes assessment across each product or customer segment. It's fine to ‘bundle’ groups of products and customers together, provided the firm can demonstrate that their features are sufficiently homogenous so as not to warrant their own assessments.
Fair value needs to underpin firms’ thinking from the start of the product lifecycle and throughout. It’s also essential to factor it into consumer communications, making sure the value proposition is clear, transparent and understandable. Where firms identify that a product isn’t delivering fair value, they must address it with clear governance, oversight, and accountability in place.
How long should a fair value assessment be?
Firms wrestle with how long and detailed their fair value assessments should be, but there are no specific rules. Essentially, the FCA needs to see robust rationale to demonstrate whether the product offers fair or if it reflects poor (or potentially poor) value. If the latter, the assessment should be detailed enough to support further investigation and action. The FCA is more interested in the ‘what’ than the ‘how.’
Fair value assessments also need to be decisive and unequivocal. The FCA will question the quality of assessments that don’t reach a conclusion, compared against a clear demonstration of what fair value means.
It’s also important to recognise that fair value assessments are not a one-and-done activity. Firms must regularly review their approach, methods and metrics to ensure products and services consistently deliver throughout their lifecycle.
Avoid a siloed approach to consumer outcomes
The FCA views Consumer Duty outcomes as mutually reinforcing, so it’s important to take a holistic view of fair value. As such, firms can incorporate compliance data relating to other Consumer Duty outcomes in their fair value assessments. For example, firms could demonstrate value through product reviews, outcomes testing or quality of communications or customer support. If firms meet all other Consumer Duty outcomes, then it's more likely that the overall product will provide fair value.
Some firms are carrying out product governance reviews and fair value assessments together. This is good practice, given that the outputs of product reviews and fair value assessments are so closely linked.
Isolating different consumer outcomes by group
Customer groups may have different outcomes for the same product or service. However, isolating these varying outcomes can be tricky, particularly for vulnerable customers. So, it’s essential to ask key questions such as:
The ability to answer these types of questions will establish a good basis for effective fair value assessments.
What metrics to use for fair value assessments?
Many firms struggle with collecting the right type and volume of data to support fair value assessments. Essentially, the FCA wants to see the expected total price, compared to the product’s financial and non-financial benefits (and limitations).
As long as firms can demonstrate the following – quantifying and rationalising the difference between them – then the exact metrics don’t matter:
When assessing benefits, it isn't enough to simply list features. It’s essential to show that those features, for example flexibility, are genuinely valued by the customer.
It’s also important to note that data alone doesn’t tell the whole story. It’s vital to deliver a clear narrative for senior leadership or other stakeholders to understand fair value in a way that’s credible, transparent and tangible.
Benchmarking is a useful tool when assessing fair value, but it’s important to take it with a pinch of salt. Just because a product is priced similarly to others in the market, or performs comparably, that doesn’t mean it offers fair value. It could simply reflect broader issues across the market.
Consumer Duty can drive growth
The FCA is actively looking at simplifying the regulatory landscape to support the Government’s growth agenda, as demonstrated in the FCA’s strategy publication and the Regulatory Initiatives Grid. While simpler regulation doesn't necessarily mean reduced supervision, we may see a shift in supervisory styles. The FCA is already showing a preference for more data-led interactions, including detailed surveys and multi-firm reviews. This will help the regulator understand what the market’s doing and, crucially, who the outliers are in terms of sectors and individual firms.
The Consumer Duty has become a cornerstone of that simplification agenda. For example, changes to insurance product governance rules and mortgages requirements are possible because the Consumer Duty acts as a ‘fail-safe’. It establishes a baseline of expectations and gives the FCA the power to intervene when it sees behaviours that aren't in the consumer’s best interest. And meeting the consumer’s best interests is vital. People that trust the market will be more likely to actively engage with it, which is good news for firms and the wider economy.
The FCA’s view is that effective application of the Consumer Duty can also reduce the potential for mis-selling, avoid debt traps, and prevent market failures. These all undermine financial stability and require costly interventions.
In that light, the Consumer Duty isn’t antithetical to the growth – but a significant contributor to it.
But getting to that point will take more time. While a non-prescriptive approach cuts the administrative burden (in principle), firms may have a longer journey to figure out what good customer outcomes look like, and how to achieve them for sustainable growth.
For further information on Consumer Duty implementation, contact David Morrey.
