FCA Enforcement Watch 2: The Consumer Duty moves into a new phase of scrutiny

From supervision to enforcement: How the FCA is approaching Consumer Duty compliance

Since the Consumer Duty rules were finalised in July 2022, the FCA has stopped short of issuing prescriptive guidance of a sort that would allow firms to be confident that they are operating within the regulatory framework. As we noted in our recent article on the FCA’s proposed targeted changes to the scope of the Consumer Duty, that is an inevitable consequence of outcomes-based regulation: firms are expected to exercise judgment in determining how best to achieve good customer outcomes. Equally, the FCA has given firms breathing space to implement and embed the Consumer Duty before reaching for its enforcement toolkit.

Against that backdrop, the FCA’s second Enforcement Watch is significant. Although it is not formal guidance on the Consumer Duty, it provides a clear statement about how the FCA is supervising and enforcing compliance. 

Two themes emerge from the publication: 

• With the Consumer Duty now fully embedded, firms should expect closer supervisory and enforcement scrutiny. The FCA notes that it now has 11 open investigations into potential Consumer Duty breaches, compared with the six it reported in January 2026.  Rather than a deterioration in standards from firms, this suggests the FCA’s initial forbearance in taking enforcement action has now come to an end.
• However, in keeping with its general approach, the FCA does not see enforcement as its primary way of driving compliance. Alongside the 11 investigations, the FCA reports that it carried out 382 supervisory interventions during the last financial year as part of what it describes as the ‘assertive supervision’ approach. 

Indeed, it is striking that for an ‘Enforcement Watch’ publication, a high proportion is taken up with describing the supervisory tools which have been applied, sometimes as a precursor to enforcement to achieve the regulatory objectives of preventing consumer harm and improving consumer outcomes.

For firms, the significance is that Consumer Duty compliance is unlikely to be assessed solely by reference to whether policies and frameworks are in place. Enforcement Watch illustrates that the FCA’s approach is increasingly focused on whether firms can demonstrate that those frameworks are delivering good outcomes in practice. It is important that firms can evidence their decision-making, identify potential harm and respond effectively when concerns are raised.

Supervisory intervention: A significant tool in the FCA’s Consumer Duty toolkit 

The FCA emphasises that formal enforcement investigations and outcomes are only one part of its approach to Consumer Duty compliance. The FCA may intervene through a range of supervisory measures, depending on the nature and seriousness of the concerns identified. 

These interventions can range from supervisory conversations and requests for information to the use of formal powers, including voluntary requirements (VREQs) and own-initiative requirements (OIREQs). These can have significant practical consequences for firms by restricting activities or making activities more cumbersome until the FCA is satisfied that deficiencies are remedied. Given that they are nearly always made public, this can have important reputational implications.

The supervision case studies in Enforcement Watch illustrate how these powers operate in practice. For example, the FCA describes instances where firms agreed restrictions on onboarding new customers, accepting additional investor capital or carrying on certain regulated activities while concerns were addressed. The examples showcase the range of purposes for which VREQs and OIREQs may be used.

This is an important point for firms considering how they demonstrate Consumer Duty compliance in practice. A supervisory intervention will often require significant management attention, remediation work and potentially business restrictions. As the case studies make clear, it is important for firms to respond effectively once concerns are identified and to recognise the opportunity to avoid further regulatory intervention, which may include an enforcement investigation. Constructive engagement, credible remediation plans and evidence that firms understand the underlying issues are important factors in determining whether concerns can be addressed through supervision or whether they require escalation.

Enforcement investigations: Fair value remains a key focus 

The prominence of fair value in the FCA Enforcement’s current Consumer Duty investigations is consistent with its wider Consumer Duty approach. Price and value was one of the first Consumer Duty outcomes that the FCA reviewed (in May 2023) and one of the first areas in relation to which it published examples of good and poor practice (in September 2024). The enforcement investigations set out in Enforcement Watch suggest that fair value remains a particular area of regulatory focus, and may be the Consumer Duty outcome which firms are finding the most challenging to grapple with. 

The assessment of value extends beyond price. Enforcement Watch reinforces that fair value is concerned with whether customers receive reasonable value from the overall product or service they receive, having regard to the benefits, limitations and foreseeable harms associated with it. The FCA also emphasises that the different elements of the Consumer Duty overlap. The investigations described in Enforcement Watch suggest that concerns about fair value are often accompanied by wider examination of firms’ product governance, customer communications, consumer support and treatment of vulnerable customers. 

The practical implication is that firms may find it difficult to address fair value concerns by focusing solely on pricing reviews or charging structures. The FCA’s approach suggests that firms should be able to demonstrate a clear link between the products and services they provide, the needs and objectives of their target market and the outcomes achieved by customers. Evidence of this may include how products are designed and reviewed, how customer understanding is assessed and how firms identify and respond to foreseeable harm.

For example, in the wealth management sector, the FCA is investigating concerns including whether consumers paid more than was fair for the services they received, alongside issues relating to financial promotions, engagement with the FCA and potential harm to vulnerable customers. The investigation into a peer-to-peer lending platform is examining not only communications provided to customers, but also potential conflicts of interest relating to loans made to certain borrowers. The FCA has also highlighted an investigation into a small independent financial adviser concerning whether it failed to carry out or document fair value assessments, before the firm agreed restrictions and ceased regulated activity.

Three investigations have followed the FCA’s multi-firm review into home and travel insurance claims handling, which identified shortcomings including delays, high rejection rates, inconsistent outcomes and incorrect claims decisions. The FCA is also investigating whether a travel insurance provider ‘hollowed out’ a product by reducing policy features in a way that undermined customer value. The FCA notes that, if the evidence supports a public enforcement outcome, it considers that such an outcome would help deter similar misconduct.

Public investigations: Transparency as part of the FCA’s approach

Finally, away from its Consumer Duty focus, the FCA highlights its decision to make public two investigations into claims management companies in the motor finance sector: The Claims Protection Agency Limited and Consultation Claims Limited. In both cases, supervisory intervention took place before enforcement investigations were announced, with VREQs agreed to address immediate concerns. However, the FCA concluded that potential historic misconduct still warranted further investigation. The decision to announce these investigations demonstrates how the FCA may use transparency as part of its wider supervisory and enforcement strategy, including where publication may assist affected customers in considering their options. It also confirms that supervisory intervention does not necessarily bring regulatory scrutiny to an end: the FCA may still investigate historical conduct where it considers that further examination is warranted.

Conclusion

The FCA has used the second Enforcement Watch to continue to provide transparency and insight into its activities. Whilst firms will welcome the indication of how Consumer Duty compliance is being assessed as the regime matures, we anticipate that they would also find further guidance as to what the Consumer Duty really means in practice useful.  Some of this may come in due course from the outcomes of the enforcement investigations which the FCA has mentioned are underway – albeit necessarily these will represent the more extreme cases which the FCA identifies. Overall, this publication highlights the FCA’s current approach: increasingly intensive supervisory intervention, using a range of tools including skilled persons review and VREQs, but with enforcement on the table for the most serious cases and those where firms fail to engage and remediate issues effectively, For firms, therefore, the key challenge in avoiding enforcement action, is being able to demonstrate that Consumer Duty frameworks are embedded, outcomes are being monitored and concerns are addressed promptly when identified. 

For related information on the FCA’s approach to enforcement and on transparency in enforcement, see our earlier articles here:

• Beyond the headlines: FCA sets out its full-spectrum approach to fighting financial crime – As the lines between enforcement and supervision blur, interactions with the FCA require even more care.
• High Court dismisses challenge to Naming Announcement by the FCA – The High Court dismissal of the first judicial review challenge of the FCA’s use of the ‘exceptional circumstances’ test that governs when the regulator may publicise an enforcement investigation.
• Doing the right thing? FCA's clemency comes at a cost – The FCA has censured a firm for breaching Principle 10 and the Client Money Organisational Requirements Rule.