The Financial Conduct Authority (FCA) has told firms to pay particularly close attention to existing and new communications which customers rely on to make purchasing decisions as this is where its rules “really bite”.
The regulator also warned firms to avoid using generic communications which would not improve consumer outcomes and to use “demystifying language” and reduce industry jargon.
FCA consumer policy manager Richard Wilson was speaking on the regulator’s latest podcast where he outlined the customer understanding outcome of the incoming Consumer Duty regime.
During the podcast, Wilson pointed out that complying with the consumer understanding outcome requires firms to pay “particular attention” to the specific communications that customers are relying on to make their decisions.
He warned that from the 31 July the rules will apply to existing products and services that are open for sale or renewal – meaning they will apply to all communications relating to those products and services from that date.
“It doesn’t matter if these are newly drafted communications or ones that have been issued for some time, they will all be covered,” he said.
“So yes, the existing communications will need to be reviewed by firms before those rules come into effect in July 2023 to make sure they meet the new standards of the duty.
“But firms should pay particular attention to those communications that customers rely on to make decisions. This is often where consumer harm stems from, and this is where the rules really bite.
“So, focus first on those communications that are really essential for protecting consumers from foreseeable harm.”
Demystifying language and generic comms
Wilson called on firms to take a “step back” and consider their approach more holistically and ask themselves if there is more they need to do to support good customer outcomes.
He explained this may require rethinking how some of mandatory communications are presented to make them more effective and may also mean taking a layered approach to communicating – considering how to package up the information they provide and help consumers navigate their way through which may involve some signposting.
This could also mean using demystifying language and providing simple, plain English explanations of any complex technical informational or industry jargon that is in the firm’s mandatory communications.
Wilson added the regulator did not expect firms to tailor communications to every single individual, noting “that’s unrealistic”.
“But we do expect firms to consider the information needs of target recipients,” Wilson said.
“Such as what is the purpose of the communication? Who is it going to, what do they need to know?”
Wilson highlighted previous bad practice which firms needed to avoid.
“What we’ve seen in the past is firms write really generic communications probably for operational efficiency,” he continued.
“The problem is, those are the communications that are often overlooked because it’s not obvious to the customer why they are addressed to them, and they have to wade through lots of text to find information that is relevant to them.
“So, communications like that are really unlikely to work to improve customer understanding, and therefore to improve outcomes for consumers.”
Supporting vulnerable customers
Regarding vulnerable customers, Wilson said firms needed to recognise that some customers will likely be in vulnerable circumstances so they should think about what they can do to support good outcomes for them.
He added while this might include processes that allow for communications to be issued in a larger font or in Braille or in another language where appropriate, it could also just be about giving customers extra time and a call to digest information and helping them to understand it.
But Wilson also pointed out that firms’ communications need to be equally effective, regardless of the channel used – whether digital, face-to-face or over the phone.
In terms of testing communications, Wilson explained that smaller firms will not have the same capabilities so the regulator expects them to take a proportionate approach. But he also clarified that it is not the case that every communication needs to be tested before it can be sent out.
Ongoing work – not a ‘one and done’
And in terms of the run-up to when the duty comes into force and what firms need to be doing to ensure they are ready in this area, Wilson recommended they have a programme of work in place to deliver changes required to meet the deadline along with proper governance and oversight as well.
“Firms should be thinking about prioritising that implementation work where appropriate based on the risk of poor outcomes, and their assessments of where they’re likely to be furthest away from the duty standards,” he continued.
“Focus your testing where, on the communications that are most important for consumers in terms of making choices, avoiding foreseeable harm and prioritise in that way.
“It’s important to remember this isn’t a one and done. It’s not just about preparing for July and then leaving it, it’s about setting in place ongoing arrangements, governance monitoring to make sure that you are monitoring your communications to consumers, reviewing what their impact is, looking at that data I mentioned earlier and making changes where necessary.
“So, it’s an ongoing requirement or an ongoing process.”
