Publication to firms on the findings of the Retail banking Consumer Duty multi-firm work.
The Consumer Duty (the Duty) came into force for current products (on sale) products on 31 July 2023. It is a cornerstone of our 3-year strategy and a key part of our work to set and test higher standards. This publication sets out the key findings from our review of banking firms’ implementation of the Duty. The review looked at actions firms had taken for customers in financial difficulty, dealing with bank accounts of deceased or incapacitated customers, fraud and security breaches, business current accounts and/or mortgages for debt consolidation.
Who this applies to
The findings from this multi firm review will be of most interest to banks, building societies and mortgage providers. But other firms that have or are taking steps to embed the Duty may also find the findings relevant.
What firms need to do
All firms should evaluate their products, services and processes against the Duty rules and guidance on an ongoing basis to allow them to put consumers at the heart of their business and deliver good outcomes for customers. Firms may also find the review useful when considering what changes they need to make to closed book products as we head towards the 31 July 2024 implementation deadline for closed products and services.
Firms who identify gaps against our expectations should take appropriate action to address these. The section ‘What we expect from firms’ sets out our expectations in more detail.
Why we did this work
In February 2023 we wrote to banks, building societies, mortgage lenders and administrators to outline our expectations on implementing the Duty, in advance of the July 2023 deadline.
As part of their work before the deadline, firms should have developed an approach to review all their products and services against the Duty’s higher standards to identify any gaps they need to address to ensure good customer outcomes.
We wanted to understand how firms had approached these reviews, the information they used to inform their gap analysis and the actions they had taken or needed to take to deliver good outcomes for customers.
What we did
In July 2023 we undertook a desk-based review of 70 product journeys across a range of 47 firms. These reviews focused on the approach firms followed to develop frameworks, apply methodologies and the results and outputs of the gap analyses.
We also reviewed the actions firms had taken, or planned to take, to improve specific customer journeys, products or services in light of the Duty gap analysis.
When reviewing firms’ information on business current accounts and debt consolidation, we considered how they had implemented the requirements under the Duty’s products and services outcome. This included how they had defined target markets and appropriate distribution strategies.
We set out the findings of our review below. Where we reference good practice, these are examples we found during our review.
What we found
Frameworks and methodologies
Firms took varying approaches to assessing products and services against the higher standards of the Duty. Where firms had developed frameworks with clear expectations and/or user guides we could see how these could be applied across different products and services and so used across the business. Examples of this were frameworks that were directly mapped to sections of our Finalised Guidance, which highlighted the metrics and reasoning for each section. We also saw examples of separate user guides for those undertaking the gap analysis to ensure accuracy and consistency.
We saw some firms thinking about how they could set baseline standards of good customer outcomes. These fed into supplementary frameworks or guidance documents, such as customer communications playbooks, pre-work for gap analysis workshops or customer support criteria documents. This helped to implement a consistent approach which supported the objective identification of gaps in processes, procedures and approaches across the business. For example, some firms held workshops with staff from different parts of the business, to walk through their gap analysis findings and answers, to ensure interpretation across reviews was aligned.
We saw good examples when assessing how firms were implementing the frameworks. For example, where firms had provided completed frameworks that outlined the end-to-end customer journey across products and services, starting from the inception of the product to the post sale support for customers. In the better practice we observed, reviewers were guided towards answering key questions linked to requirements within each outcome and asked to provide evidence in the form of commentary and/or data points to justify their answers. This enabled firms to clearly identify gaps and prioritise workplans to resolve them, noting where some gaps were dependent on others being resolved.
The range of data used to support these assessments varied between firms. Firms need to be able to demonstrate they are delivering good outcomes to customers and make changes where this is not happening. We found firms that used a range of data points, rather than relying on a single source of insight in their review, were better able to consider different types of customers, and outcomes for customers in different scenarios. These firms were able to clearly identify areas requiring improvement or remediation in line with the Duty.
We also saw some firms had identified a wider range of data, with some building data libraries, that would be required in addition to their existing MI to provide insights into key areas.
Results and outputs
Firms used their reviews to identify areas of customer harm and/or the risk of potential harm. This enabled firms to prioritise gaps into stages for action to resolve them.
Many firms had clear plans in place including suitable remediation, ownership, timelines for completion, budget and mitigation plans until the gap was resolved. Where firms had outstanding actions resulting from their gap analysis, they should have considered the potential extent of harm from failure to meet the deadline and have clear mitigation plans in place.
Not all firms provided us with the complete outputs of their analysis. Some only provided excerpts from the analysis or simply a statement saying they had not identified any harms, but with no evidence to support the statement. This made it difficult to determine if firms had fully considered all customers outcomes through a range of scenarios. We remind firms of the need to monitor their customer outcomes, and to be able to provide evidence of their monitoring and assessment of these outcomes and any resulting action, on request.
Distribution strategy and target market
The better frameworks we reviewed had clearly identified the target market, including who the product was and was not suitable for (with specific identification of customer cohorts). These frameworks had considered a wide range of distribution channels and strategies, including self-serve, in branch relationship managers, telephony and digital avenues. We also noted firms demonstrating specific target market controls and analysis where monitoring was in place to test the product control and the effectiveness of the distribution strategy.
Product design and features
As part of product design, there was evidence of some firms considering qualitative factors (eg requirements of target market, macro-economic factors, relationship manager feedback) and quantitative factors (eg the number of complaints about a product, revenue from product). There was also some evidence of the monitoring that firms had in place to assess how the product performed in different market conditions and customers’ changing needs throughout the product lifecycle. Firms should ensure they have adequate monitoring in place when reviewing product design and features or when introducing new products.
Considering vulnerable customers
While some firms considered treatment of vulnerable customers within their reviews of products and services, this was lacking in some firms’ documentation. We remind firms that the Duty raises the standard of care to all consumers. Our guidance on the fair treatment of vulnerable customers sets out what firms should do to ensure customers in vulnerable circumstances experience outcomes as good as those for other consumers.
There was evidence of a range of firms adopting a test and learn approach in their review of consumer understanding. In the better practice, firms had identified the area responsible for the communication, identified key communications or prompts customers used in decision-making and used a range of testing (controlled trials, experiments, surveys, interviews and focus groups) when reviewing consumer understanding. Following the review, these firms put clear actions in place to identify gaps and improvements needed to increase consumer understanding.
Improvements to specific journeys
Customers in financial difficulty (CiFD)
We were pleased to see that some firms had applied frameworks across their products to review a range of customer journeys for CiFD. This enabled these firms to build data to identify trends in the journeys of customers who could be in early onset of financial difficulty. Some firms improved their support of CiFD through financial assistance and support teams. This led to firms making improvements, for example, to increase the support offered to CiFD when considering alternative borrowing options to overdrafts. Firms had also considered the ways they supported customers to introduce or reduce limits for unused borrowing options.
We saw some firms making changes to improve and simplify the language used to support the understanding of CiFD. Some firms reviewed third party fees and charges incurred by CiFD. These included arrears and litigation activity, as well as their own product charges and fees. To ensure compliance with the Duty, these firms then put in place appropriate oversight and governance of suppliers and third parties.
Our review of the journeys for customers reporting fraud or security issues showed that a few firms had taken into consideration the number of times customers needed to repeat the reasons for their call. To reduce this frequency and delays for customers, some firms introduced fraud markers to route calls directly to their fraud operations teams.
Reporting bereaved/deceased customers
In our February 2023 letter we highlighted that firms should consider the potential for simplifying and easing the complex and sometimes burdensome customer journeys when dealing with accounts of deceased or incapacitated family or friends, or other similarly sensitive scenarios.
We were pleased to see that many firms had been able to identify ‘sludge practices’ which caused delays to resolving issues. There was evidence of some firms simplifying the process of reporting a deceased or incapacitated family member through appropriate automation of the journey, such as when submitting documents.
Improvements to specific products
Business current accounts (BCA)
We were disappointed to see that reviews of BCAs varied between firms. Some firms conducted a review of the full range of BCAs available to customers, while others relied on customer awareness of the fees and charges as ‘evidence’ the product provided fair value. In some instances there was little evidence the firms had made a fair value assessment of BCAs.
We remind firms that the Duty also applies to SME customers in line with the approach in our existing rulebook.
Some of the good practice we identified included improvements some firms had made to make the online journey for BCA account switching easier. There was evidence of some firms providing data to affirm and validate customer understanding of BCA pricing and charging.
Very few firms were able to identify vulnerable customers within their reviews of their BCA offering. We would expect firms to be able to identify BCA customers in vulnerable circumstances to the same standard as they would for personal customers.
Mortgages used for debt consolidation
Where firms had considered that products could be used to consolidate debt, we saw examples of improved processes for monitoring changes to customer circumstances across the product’s lifetime. Some firms had considered implementing ongoing feedback loops with key distribution partners and started work to address common challenges in the chain which could cause delays in the customer journey. A limited number of firms had clear communication plans to support customers throughout the product lifecycle beyond that offered to customers who were not using mortgage products to consolidate debt.
It was disappointing that several firms did not consider that consumers were using mortgages for debt consolidation purposes. We remind firms they need to ensure they have meaningfully considered the debt consolidation customer journey where a product allows for debt consolidation. This is the case even where firms may not have specifically designated these products as debt consolidation products.
What we expect from firms
The Duty sets a higher standard of care that firms must provide to consumers in retail financial markets and plays a key role in underpinning our expectations of firms. All firms should be focused on putting consumers at the heart of their business and delivering good outcomes. Firms should assure themselves that they are complying with:
- the Consumer Principle, which requires firms to act to deliver good outcomes for retail customers
- the cross-cutting rules for firms to act in good faith towards retail customers, avoid causing foreseeable harm to retail customers, and enable and support retail customers to pursue their financial objectives, and
- our outcomes rules on the design of products and services, price and value, consumer understanding and consumer support
Firms need to ensure they have the appropriate MI and can evidence the outcomes their customers are receiving.
In addition to sector-focused work, we will also explore how firms are meeting our expectations under the Duty for themes and issues across multiple sectors. The findings from this review will feed into this cross-sector work. There is real scope for learning from different industry areas, and we want to drive forward good practice across financial services.
We will continue to monitor how firms are meeting the higher standards the Duty expects. For older products that are no longer on sale, the rules will apply from 31 July 2024, and we will engage with firms on their implementation plans for closed book products.
We also remind firms that their Board must, at least annually, review and approve an assessment of whether the firm is delivering good outcomes for its customers which are consistent with the Duty. Firms should expect us to ask for the results of their monitoring and their Board reports. We will use this information, as well as the information that we already gather from firms and other sources of data, to assess them against the Duty and identify and tackle harmful practices.