Consumer Duty: what can firms learn from the FCA's latest Enforcement Watch?

Nearly three years on from the Duty's introduction, the publication signals that the FCA is increasingly taking action. 

While the FCA continues to emphasise that most firms seek to do the right thing, the newsletter offers a clear indication of the behaviours, governance weaknesses and customer outcome concerns that are attracting regulatory attention.

The FCA is moving from implementation to enforcement

When the Consumer Duty was first introduced, the FCA acknowledged that firms would need time to embed the new requirements. The regulator now has 11 open investigations examining potential Consumer Duty breaches across insurance, pensions, wealth management, consumer investments and claims management.

As well as enforcement, the regulator continues to use its supervisory tools, including skilled person reviews and other interventions, to address concerns before they escalate into formal investigations. Since the Duty was introduced, the FCA has commissioned around 30 skilled person reviews that reference the Consumer Duty.

The publication also highlights the role of "assertive supervision", with regulatory interventions often being used to address issues before they escalate into enforcement action. Last financial year alone, the FCA intervened 382 times. This reinforces the importance of responding promptly and effectively to supervisory feedback, as firms may have opportunities to remediate concerns before more serious regulatory action is necessary. 

Consumer harm remains the key trigger for intervention

A consistent theme throughout the publication is the FCA's focus on preventing and addressing consumer harm. The regulator highlighted a number of recent interventions where firms faced restrictions after concerns relating to fair value, customer outcomes, conflicts of interest, vulnerable customers or misleading communications.

Examples included concerns over:

• Products and services that may not have delivered fair value, such as the FCA's review of undervalued motor insurance total loss settlements.
• Firms failing to adequately monitor customer outcomes, including those delivered through distribution chains and support for vulnerable customers.
• Weak oversight of distribution arrangements, including concerns relating to client categorisation and meeting Consumer Duty obligations when designing and distributing products.
• Misleading financial promotions and customer communications, including failures to clearly disclose free alternatives and fees, and misuse of a firm's regulatory status.
• Customer journeys resulting in unfair outcomes, including customers paying for services that provided little or no benefit, and the rejection of claims after misleading information was presented by a firm.
• Introducer and distribution arrangements that conflict with the Consumer Duty, including business accepted from unauthorised introducers who gave consumers a misleading impression of potential investment returns and exploited customer behavioural biases.

Fair value continues to be a major area of regulatory focus

One of the key themes emerging from the FCA's enforcement activity is fair value. Several investigations are examining whether customers received fair value from products and services relative to the price they paid.

Importantly, the FCA reiterates that fair value is about more than price alone. A product that fails to meet customer needs, causes foreseeable harm or delivers little meaningful benefit is unlikely to represent fair value, regardless of the cost. The FCA's examples reinforce this point. In one case, concerns arose after a travel insurance provider had reportedly "hollowed out" a product by reducing policy features, raising questions about whether customers were continuing to receive sufficient benefits for the price paid.

The regulator highlighted investigations into whether firms adequately carried out and documented fair value assessments. This reinforces the expectation that firms must be able to evidence how their products and services deliver value to customers and justify key pricing and product design decisions.

The FCA also highlights that the Consumer Duty outcomes should not be viewed in isolation. A product that does not meet customer needs may also fail to deliver fair value, result in poor customer understanding and ultimately lead to poor customer outcomes. Firms should therefore take a holistic approach when assessing Consumer Duty compliance.

Customer support under scrutiny

The FCA's investigations include cases relating to operational failings that affected the customer experience, including delays in complaints handling and failures that prevented customers from accessing important account information.

Similar themes emerged from the FCA's wider review work of the home and travel insurance sectors, which identified weaknesses in claims and complaints handling, including high rejection rates, inconsistent outcomes, missed complaints and incorrect claims decisions. In some instances, vulnerable customers may have experienced heightened or foreseeable harm as a result.

Claims management companies also attracted scrutiny. The FCA is investigating concerns around advertising and sales practices, including what customers were told about potential redress, whether they were informed that claims could be submitted free of charge, and whether pressure was applied. Other investigations are considering allegations that consumers may have been signed up to agreements without consent, including concerns around forged signatures, as well the information provided about exit fees and cancellation rights.

The FCA expects firms to evidence good outcomes

The newsletter contains numerous examples where firms faced supervisory or enforcement action because they were unable to demonstrate that products offered fair value, that customer outcomes were being effectively monitored or that customer interests were being placed at the centre of decision-making.

Investigations also referenced concerns around firms' engagement with the FCA, the quality of information provided to consumers, the management of conflicts of interest, and the adequacy of governance and documentation supporting key decisions.

As the Consumer Duty continues to mature, firms should expect increasing scrutiny not only of their governance frameworks and policies, but also of the evidence used to support decisions and demonstrate good outcomes.

What should firms take away from the Enforcement Watch?

As the FCA continues to develop its Consumer Duty supervisory and enforcement approach, firms should expect increasing focus on how they identify, monitor and address risks to customer outcomes, and on their ability to evidence that actions taken are delivering measurable improvements for customers. Regulatory scrutiny extends beyond customer outcomes to areas such as governance, documentation, financial promotions and the quality of engagement with the FCA, reinforcing the need for firms to demonstrate the rationale for key decisions and effectiveness of their Consumer Duty frameworks.