Conduct risk frameworks under FCA Consumer Duty

A head of conduct risk is reviewing the outcome monitoring pack that will go to the board. The pack tracks complaints, forbearance take-up, and switching rates by product line. It does not track whether the credit scoring model produces systematically different outcomes for customers in financial difficulty. That question was not in the implementation plan.

The Financial Conduct Authority (FCA) put that question into scope with the Consumer Duty, introduced in Policy Statement PS22/9 in July 2022. The Duty came into force for open products on 31 July 2023 and was extended to closed-book products on 31 July 2024.¹ Two supervisory letters carried the same message: the framework has been built; the question now is whether it is working. One went to retail banks in February 2023, the other to firms with closed-product obligations in May 2024.

What Treating Customers Fairly left unanswered

Treating Customers Fairly (TCF) is the conduct framework the Consumer Duty supplements, and the FCA describes the Duty as setting a higher standard than what came before.¹ On Gini’s reading of how firms worked under TCF, the practical difference is latitude: the old expectations were outcome-based in principle but left the method largely to the firm. In practice, meeting the standard meant showing no obvious harm had occurred: if complaints rates were low and products were documented accurately, a firm could satisfy itself that it was meeting the standard. The framework was oriented towards avoiding demonstrable harm rather than towards evidencing affirmative benefit.

The Consumer Duty replaces that passive-negative logic with an active obligation. PS22/9 introduced “a new Consumer Principle that requires firms to act to deliver good outcomes for retail customers”, Principle 12 in the FCA’s Principles for Businesses sourcebook.¹ Acting to deliver a good outcome is a different obligation from avoiding a demonstrable harm. The FCA’s non-Handbook guidance, FG22/5, is explicit that the cross-cutting rules “set out how firms should act (proactively and reactively) to deliver good outcomes for customers”.² Proactive design, not just reactive remedy.

The evidence standard moves from reactive to prospective: a Consumer Duty framework must demonstrate, at the customer-segment level and on a continuing basis, that products are delivering what they were designed to deliver.

Three rules, four outcomes

Principle 12 is given operational content by three cross-cutting rules that sit above the four specific outcome areas.

1. Act in good faith
2. Avoid causing foreseeable harm
3. Enable and support retail customers to pursue their financial objectives

The Consumer Duty’s three cross-cutting rules are not separate boxes to tick once and move on. Each one applies across all four outcome areas and sets a distinct positive obligation. Meeting one does not satisfy the others: a firm can avoid causing foreseeable harm to retail customers without enabling and supporting them to pursue their financial objectives, which is what the third rule requires in the FCA’s own words.² Both are required.

The four Consumer Duty outcome areas cover the full arc of a retail product relationship.

1. Products and services outcome: requires that offerings are designed to meet the needs, characteristics, and objectives of an identified target market, with no significant foreseeable harm to customers in that market.
2. Price and value outcome: requires that the total cost of a product, including all fees, charges, and interest, is reasonable relative to the benefits customers actually receive.
3. Consumer understanding outcome: requires communications that enable genuinely informed decisions, not merely technically disclosed ones.
4. Consumer support outcome: requires that arrears management and forbearance processes are designed around customers’ actual circumstances, with accessible support for customers in financial difficulty.

A risk framework that monitors the four Consumer Duty outcomes by customer segment is, structurally, what the Duty requires a conduct risk team to have.

Governance that reaches the board

Knowing what the four Consumer Duty outcomes require defines the framework. Knowing who is accountable for each one, and at what governance level, is what makes it operational.

Chapter 13 of PS22/9 changed the Senior Managers and Certification Regime (SM&CR) rules to put clear accountability for Consumer Duty delivery inside firms, and required the Duty to be reflected in strategies, governance, leadership and people policies.¹ Under SM&CR conduct rules, those managers are personally accountable for delivering good outcomes within their areas of responsibility.

• Boards must consider and approve an annual assessment of whether the firm is delivering good outcomes for customers.¹
• Boards must confirm that any issues identified have been, or are being, addressed.
• Boards must confirm that the firm has appropriate ongoing processes to continue delivering good outcomes.

The annual board review is not the only governance mechanism. FG22/5 Section 10 expects culture and accountability to be embedded throughout the year.² Nonetheless, the board report remains the artefact against which supervisory readiness is assessed. If the outcome monitoring data flowing into the board report cannot support a board-level assertion, the governance structure is not yet functional.

For heads of conduct risk, this has a direct consequence for data. Complaints rates and Financial Ombudsman Service (FOS) final decisions are valid inputs, but Chapter 13 of PS22/9 asks firms to monitor and regularly review the outcomes their customers actually get, including whether any specific group is getting worse ones.¹ The monitoring pack that reaches the board must support those assertions at customer-segment level, not product-average level.

Where the scoring model meets the Duty

Consumer Duty reaches credit risk teams at three specific points where lending decisions carry direct conduct obligations.

1. Affordability assessment: Under the Consumer Duty, affordability assessment must establish not only whether a customer can repay, but whether extending credit leads to a good outcome. A customer who clears the repayment test, the debt-to-income threshold and the credit score cut-off can still fail the good-outcome test, if extending credit would cause harm in their actual circumstances. The scoring model must address that question, and the evidence that it did must be available.
2. Pricing strategy: The price and value outcome requires pricing to survive a fair value assessment evidenced by outcome data at customer-segment level. The assessment asks whether the total benefit a customer receives is commensurate with what they pay, across all identifiable groups in the product’s customer base. Where pricing produces systematically different outcomes across segments, the fair value assessment has to explain why, in cost or risk terms. Without that, the assessment does not evidence what the price and value outcome requires.
3. Model governance: A credit model that produces worse outcomes for identifiable customer groups raises concerns under both the Consumer Duty and the FCA’s April 2024 AI Update, whether the cause is biased feature selection or data gaps for certain populations.³ Firms are expected to monitor outcomes at segment level, document the model’s behaviour, and have a clear escalation path when disparate outcomes are detected. This is particularly acute for vulnerable customers, who are more likely to carry elevated credit risk, where poor arrears management becomes both a credit loss and a Consumer Duty failure.

What the FCA found when it looked

The FCA’s February 2023 Dear CEO letter drew out three headlines for retail banks, among them “the need for firms to provide fair value to retail customers”, warning firms not to underestimate “the high expectations we now have of the rigorous and balanced analysis with which firms should be able to support their assessments of fair value”.⁴ Translated into what a conduct framework has to evidence, Gini reads that as three gaps:

• Target market definitions were incomplete or absent for some products, making it impossible to assess whether the customer population matched the design intent.
• Fair value assessments had been completed at product-line level rather than customer-segment level, leaving pricing disparity within a product invisible in the evidence.
• Outcome monitoring by customer segment was inadequate, particularly for overdraft borrowers, the group most likely to include customers in financial difficulty.

The May 2024 Dear CEO letter, covering the closed-book phase, set out several priorities, among them customer data gaps and fair value.⁵ Those two recur across both letters, and the shape of the problem is the same each time: firms had policies in place but not the data infrastructure to demonstrate what those policies were achieving.

What is the FCA checking for now?

The Consumer Duty is fully in force. The implementation phase is over; the monitoring phase has begun. The supervisory letters are consistent on what is still missing: outcome data that reaches the board at customer-segment level, with enough granularity to confirm that products are delivering fair value and that affordability and model processes are producing good outcomes rather than passing a compliance checklist. Many firms built a framework to meet the go-live deadline. The harder task is what the FCA is now examining: building the data infrastructure that can finally answer the question the head of conduct risk’s board pack could not, whether the scoring model treats customers in financial difficulty differently.

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