The FCA has recently published a paper on smarter consumer communications (FS16/10). It pulls together feedback on various issues around communicating information to consumers in a way that is compliant but also more engaging and relevant than is the case currently.
It does not contain any proposed new rules or policy but it does signpost some future work by the FCA (which looks very positive) and highlights approaches deemed to be leading the way in this area.
The paper covers a diverse range of products and services within the FCA’s remit. However, there are a few key themes firms should take note of:
- The FCA is clearly aware that firms tend towards overprovision of information in order to reduce the risk of complaints and claims. However, this can have the opposite effect to that desired. The most important information is hard for the consumer to discern, meaning they can generally disengage with all of the details provided.
- One approach the FCA encourages to address this is the provision of information in layers: i.e. headlining the most important bit first. This seems to be a sensible and achievable approach.
- The FCA is also aware its rules can be perceived to prevent innovation, as they are deliberately media neutral. It agrees to look at this in various ways, which is encouraging. However, it pushes back fairly firmly on what it sees as an implicit suggestion that the rules on financial promotions and risk warnings, for example, should be relaxed for social media and other forms of abbreviated communications. It is clear the regulator does not intend to stray far from its core principle of treating customers fairly on this issue, although it is prepared to engage on how new approaches may be adopted that are consistent with that principle.
- Many of the FCA’s positions in FS16/10 appear to be backed up by research into consumer behaviour. It is good to see it listening to firms’ views properly and basing responses and proposals on evidence as to how consumers generally behave.
- The examples of good practice on smarter communications are really worth reading. Even though some are very product/service specific, it is often possible to draw high level conclusions that would apply across the sector.
Overall, I am greatly encouraged by the approach outlined in FS16/10. The FCA is genuinely engaging with firms and other stakeholders on this issue, and appears to want to make real progress in helping increase consumers’ understanding of what they are buying. And that can only be a good thing: a better understanding increases satisfaction and should reduce claims and complaints.
There are lessons for the legal sector (and indeed the professional services sector generally) in FS16/10. Like the financial services sector, my sector can be guilty of information overload when engaging with clients, driven by our own regulatory obligations and desire to avoid the risk of claims. While this usually starts from a good place of wanting to be as transparent as possible, the amount of information provided can have the opposite effect. We too are continually reviewing how we engage with clients and trying to do it better. Sound familiar?
Finally, when designing information to be disclosed to consumers it is often a good idea to “road test” it on what you see as your target audience. This can be as simple as asking a friend who is not particularly familiar with financial services for their opinion on the information you would be looking to disclose.
Does it get your key messages across? Were they bored before they reached the end? What were the three key things they took away from reading it?
You may not like the all feedback that you get but it could be very constructive and help shape your future approach.
Alan Hughes is partner at Foot Anstey LLP