The Regulatory Logic That Makes External Data Essential
PS25/22 does not explicitly mandate that firms must use external benchmarking data. The FCA has not published a rule saying “you must purchase third-party data.” Yet the regulatory framework it has created makes external benchmarking practically unavoidable for any firm that wants to build a defensible targeted support proposition.
Understanding why requires tracing the logic chain embedded in COBS 9B.
The Three Requirements That Demand External Evidence
1. Common Characteristics Must Be Objectively Determined
COBS 9B requires that targeted support segments are defined by characteristics that consumers in the segment genuinely share. The word “genuinely” is doing significant regulatory work here. The FCA is drawing a distinction between:
- Objective commonality: Characteristics that consumers demonstrably share across the market, validated by independent evidence
- Apparent commonality: Characteristics that appear shared within a single provider’s book, but which may reflect the provider’s own selection effects rather than genuine consumer similarity
A firm relying solely on internal data cannot distinguish between these two. Only external, cross-provider data can confirm that a characteristic is genuinely common to a consumer group rather than an artefact of the firm’s own distribution and product design.
2. Excluding Characteristics Must Be Evidence-Based
The requirement for excluding characteristics creates an even more direct need for external data. Excluding characteristics are the criteria that separate one segment from another — the evidence that consumers in Segment A are genuinely different from consumers in Segment B.
If your segments are defined using only internal data, your excluding characteristics reflect internal variation. A consumer who looks “different” within your book may look identical to their cross-provider peers. Conversely, consumers who look similar internally may have fundamentally different market-wide behaviour patterns.
The FCA will test whether excluding characteristics are genuine differentiators or arbitrary boundaries. External data provides the evidence to defend that distinction.
3. Better Position Must Be Demonstrable
Perhaps the most significant requirement is the “better position” test. Firms must show that consumers who receive targeted support end up, on balance, in a better position than they would have been without it.
“Better position” is inherently a comparative concept. Better than what? The most credible answer is: better than comparable consumers in the broader market who did not receive the same targeted support. This requires a market-wide benchmark — which, by definition, cannot come from internal data alone.
The Supervisory Perspective
The FCA has signalled that it will take a proactive supervisory approach to targeted support. Firms should anticipate questions that probe the independence and objectivity of their evidence base:
| “What independent evidence supports your segment definitions?” |
| “How do you know your segments reflect genuine consumer groupings rather than your own product architecture?” |
| “Against what benchmark do you measure whether consumers are in a better position?” |
| “How would your segmentation change if you incorporated cross-provider behavioural data?” |
A firm without external benchmarking data will struggle to give satisfactory answers to any of these questions.
The Consumer Duty Amplifier
The targeted support regime does not operate in isolation. It sits within the broader Consumer Duty framework, which requires firms to deliver “good outcomes” and act to avoid foreseeable harm. The Consumer Duty amplifies the case for external benchmarking in two ways:
- Outcome monitoring: The Consumer Duty requires firms to monitor and evidence outcomes at product and service level. Market-wide benchmarks provide the reference point against which “good” outcomes can be objectively assessed
- Foreseeable harm: If external data would have revealed that a segment was poorly defined — leading to inappropriate suggestions — a firm cannot claim the harm was unforeseeable. The existence of available cross-provider data creates a reasonable expectation that firms will use it
The Proportionality Argument
Some firms may argue that external benchmarking is disproportionate to their size or the complexity of their proposition. The FCA has acknowledged that proportionality applies to targeted support implementation. However, proportionality relates to the sophistication of the approach, not the absence of external evidence.
Even a simple targeted support proposition with three or four segments needs to demonstrate that those segments are objectively defined. A smaller firm may need less granular external data, but it still needs some independent evidence to validate its segmentation.
The Timeline Pressure
With the targeted support regime going live in April 2026, firms that have not yet incorporated external benchmarking into their segmentation methodology face an increasingly compressed timeline. The practical steps — procuring data, integrating it into segment design, documenting the methodology, and testing outcomes — require lead time.
Firms that wait until the regime is live to address external benchmarking will find themselves in a reactive position, potentially needing to redesign segments after launch when the FCA begins its supervisory review programme.
Key Takeaway
The FCA does not explicitly require external benchmarking — but the logical chain of COBS 9B requirements makes it practically unavoidable. Common characteristics, excluding characteristics, and the better position test all demand evidence that internal data alone cannot provide. Firms that recognise this now will be better prepared than those that discover it during supervisory review.