Outcomes Monitoring: FCA Highlights Good Practice and Areas for Improvement

Dentons | Andrew Barber , Katharine Harle, Lara Seabourne, Venetia Jackson, Jessica Cooke, Angelica McCall, Lauren O’Riordan and Ann Zheng

United Kingdom

The FCA has published two complementary publications on outcomes monitoring under the Consumer Duty: “Outcomes monitoring – Good practice and areas for improvement” and an accompanying blog by Charlotte Clark, Director of Cross-Cutting Policy and Strategy at the FCA, “Outcomes monitoring: why understanding the consumer experience matters and where firms should focus”. Taken together, the publications provide further insight into the FCA’s expectations of how firms should monitor customer outcomes and, importantly, how that information should be used to identify emerging risks and drive improvements for consumers.

The publications do not introduce new requirements under the Consumer Duty. Rather, they build on the existing monitoring obligations in PRIN 2A by providing practical examples of approaches the FCA considers effective, alongside areas where it considers firms could strengthen their arrangements. They also provide a useful indication of the issues firms are likely to encounter during supervisory engagement as the FCA continues its programme of work reviewing firms’ implementation of the Consumer Duty.

For firms, the publications provide a useful opportunity to review existing outcomes monitoring arrangements. As the blog emphasises, effective outcomes monitoring is about more than collecting data or producing reports. It should help firms understand customer experience, identify emerging risks and take timely action to improve outcomes.

Developing an effective outcomes monitoring framework

The FCA considers that effective outcomes monitoring begins with firms clearly defining the customer outcomes they are seeking to achieve. Rather than starting with existing management information, firms should first identify the outcomes they want customers to experience at different stages of the customer journey before determining how those outcomes will be monitored. The blog reinforces this point by noting that effective outcomes monitoring does not necessarily require complex systems or large teams. Rather, the FCA observed that even smaller firms were able to adopt proportionate, risk-based frameworks that were clearly linked to customer outcomes and action.

Examples of good practice

The FCA identifies a number of characteristics shared by firms demonstrating stronger outcomes monitoring frameworks, including:

• Defining good customer outcomes clearly for individual products, rather than relying on broad, firmwide outcome statements, and linking those outcomes to key stages of the customer journey.
• Linking outcomes to key stages of the customer journey, enabling firms to identify where poor outcomes may arise during joining, using and leaving a product or service.
• Selecting indicators that reflect identified risks of customer harm, using measures such as complaints, customer feedback, attrition, compliance monitoring and outcomes testing to assess whether good outcomes are being delivered.
• Reviewing metrics, thresholds and targets regularly, using governance processes to challenge whether measures remain appropriate and continue to identify emerging risks.
• Taking a proportionate approach, with smaller firms focusing on their principal products, key customer journey stages and a limited number of meaningful indicators.
• Embedding outcomes monitoring within a structured governance framework, with clear ownership of monitoring activities, investigation of root causes, tracking of remedial actions and oversight of third-party information where relevant.

Areas where the FCA identified scope for improvement

Alongside examples of good practice, the FCA also identified a number of recurring weaknesses, including firms that:

• developed management information before defining the customer outcomes they wished to monitor;
• relied on generic monitoring frameworks that did not adequately reflect different products or customer groups;
• failed to explain why particular indicators had been selected or how they demonstrated good customer outcomes;
• relied on operational activity metrics as proxies for customer outcomes without defining what good or poor customer outcomes looked like; or
• did not link monitoring to key stages of the customer journey or consider whether outcomes differed across customer groups, including customers in vulnerable circumstances.

Taken together, these observations reinforce that outcomes monitoring should be built around clearly defined customer outcomes and the risks of customer harm associated with individual products and customer journeys. Firms may therefore wish to review whether existing monitoring frameworks demonstrate a clear link between the outcomes they are seeking to achieve, the indicators they monitor and the actions taken where poorer outcomes are identified.

Using data, management information and testing to improve customer outcomes

The FCA also places considerable emphasis on the quality of information firms use to assess customer outcomes. While quantitative management information remains important, the FCA’s review indicates that stronger firms combined different sources of information to develop a more complete understanding of customer experience.

Examples of good practice

Examples highlighted by the FCA include firms that:

• used both quantitative and qualitative information, combining operational metrics with customer feedback, quality assurance findings and other customer insight;
• used indicators and thresholds to identify foreseeable harm, including monitoring rejected applicants, customer vulnerability and complaint trends to trigger investigation and proportionate intervention;
• used customer data to identify friction within customer journeys and assess whether process improvements had been effective;
• considered the experiences of customers with characteristics of vulnerability, ensuring that aggregate management information did not mask poorer outcomes for particular customer groups;
• used testing and technology proportionately to improve customer understanding, data quality and the effectiveness of outcomes monitoring; and
• used management information to investigate root causes and testing whether remedial action resulted in improved customer outcomes.

Areas where the FCA identified scope for improvement

The FCA also identified examples where firms could strengthen their approach, including where firms:

• relied on narrow or reactive indicators that made it difficult to identify emerging risks before customer harm occurred;
• collected significant amounts of management information but made limited use of it to inform decision-making;
• used indicators that were reactive rather than helping identify emerging risks;
• lacked clear thresholds or escalation criteria for investigating issues; or
• could not demonstrate a clear audit trail showing how management information informed decisions, actions and subsequent improvements in customer outcomes.

The FCA’s findings reinforce that effective outcomes monitoring depends not simply on collecting information but on using reliable data to identify emerging risks, understand their root causes, implement appropriate interventions and assess whether those interventions have improved customer outcomes. Firms may therefore wish to consider whether existing MI, testing and governance arrangements provide a sufficiently robust evidence trail throughout that process. Consistent with this, the blog observes that the strongest firms were not necessarily those collecting more information, but those using existing data more effectively to identify risks, understand customer experience and assess whether interventions had improved customer outcomes.

Governance and oversight

The FCA’s publications make clear that outcomes monitoring should be embedded within firms’ governance and oversight arrangements. Governance should enable firms not only to receive information about customer outcomes but also to identify emerging risks, allocate responsibility, oversee remedial action and monitor whether interventions have resulted in improved customer outcomes.

Examples of good practice

The FCA highlights firms that:

• embed clear accountability, with named senior owners, defined escalation routes and, where appropriate, oversight from second line functions, internal audit and the Consumer Duty Champion;
• use governance forums to challenge customer outcomes, rather than simply receiving management information;
• maintain structured action trackers, recording agreed actions, named owners, target dates and progress updates;
• use management information, thresholds and triggers to escalate issues to senior management or the board where appropriate;
• review whether actions taken have improved customer outcomes, using subsequent monitoring rather than assuming implementation alone is sufficient;
• use outcomes monitoring to identify issues in frontline performance and customer journeys, supported by quality assurance, complaints analysis and targeted staff training where appropriate; and
• maintain appropriate oversight of outsourced activities and distribution arrangements, using management information from service providers, distributors and other partners where necessary to understand customer outcomes and engage with third parties where improvements are required.

Areas where the FCA identified scope for improvement

The FCA identified a number of recurring weaknesses in firms’ governance and oversight arrangements, including firms that:

• described governance structures, committees and reporting lines, but provided limited evidence of how issues were identified, escalated, challenged and resolved in practice;
• provided boards with regular management information, but demonstrated limited evidence of meaningful challenge or direction from senior management and governing bodies;
• identified customer outcome issues and implemented remedial actions, but did not clearly evidence the root causes of those issues or assess whether the actions taken had successfully improved customer outcomes;
• maintained limited evidence of accountability, making it difficult to identify ownership of actions, monitor progress or demonstrate how governance decisions had influenced customer outcomes; and
• described a customer-focused culture at a high level, but provided limited evidence of how customer outcomes were reflected in day-to-day behaviours, staff supervision, accountability or incentive arrangements.

Taken together, these observations indicate that effective governance extends beyond establishing committees and reporting lines. Firms should be able to demonstrate how customer outcomes are monitored, how issues are escalated and challenged, how responsibility for remedial action is allocated and how subsequent monitoring confirms whether those actions have improved customer outcomes. This expectation applies equally where firms rely on outsourced providers or wider distribution arrangements to deliver products and services. The blog also emphasises that effective governance is about more than reviewing reports. The FCA continues to expect boards and senior management to demonstrate how they have challenged customer outcomes, questioned assumptions and driven improvements where required.

Practical considerations for firms

The publications provide a useful opportunity for firms to review existing outcomes monitoring arrangements. The blog notes that the strongest firms were distinguished not by the volume of information they collected, but by how effectively they used it to drive better customer outcomes. Against that background, firms may wish to consider whether:

• monitoring frameworks are clearly linked to customer outcomes, customer journeys and the principal risks of customer harm;
• management information provides meaningful insight into customer outcomes, drawing on appropriate qualitative and quantitative information;
• governance arrangements clearly evidence how customer outcome issues are identified, challenged, escalated and addressed, including oversight of outsourced activities and distribution arrangements where relevant; and
• monitoring arrangements continue to evolve, with firms reviewing whether indicators, thresholds and remedial actions remain effective as products, customers and risks change.

As the FCA continues its programme of consumer duty supervisory work, these publications provide a practical benchmark against which firms can review their own arrangements. Consistent with the blog’s overarching message, firms may find it helpful to consider not only whether they are collecting the right information, but whether they are using that information to identify harm earlier, drive decision-making and deliver better customer outcomes.

This article first appeared on Lexology | Source