The Financial Conduct Authority’s (FCA’s) findings in its review of firms’ approaches to consumer understanding suggested there were good examples of firms embedding this into their practices, and some shortcomings. It also published finalised guidance, laying out its expectations of firms.
Positively, the regulator said firms were using multiple sources to gain insights into where consumers might struggle to understand the services or products, and this was reviewed regularly to be based on evidence and not assumptions.
Firms were also proportionately testing communications and using many methods, such as short surveys, comprehension checks, A/B testing and customer callbacks. There were also examples of firms using tests to improve journeys that were needed.
However, some firms were insufficiently testing different consumer groups and not following up to see if any changes had worked.
When it came to innovation and design, there was evidence of firms simplifying messaging and using prompts, tools and interactive formats to support consumer understanding.
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The FCA said firms could improve on cosmetic changes that did not address root causes, such as shorter wording and colour changes without improving clarity, while others did little to no testing of new designs.
Some firms did not manage to adapt communications for different needs, while others had long documents without summaries or limited signposting.
Regarding vulnerability, some firms had implemented a ‘tell-us-once’ process, and the regulator said that where this was well-executed, it reduced consumer burden and allowed for more focus on understanding.
There was also evidence of firms monitoring outcomes and acting on insights.
However, the FCA said certain firms were more reactive than proactive, and this was apparent in their vague or underdeveloped policies and processes.
Further, some firms said they “considered vulnerability” but did not demonstrate how this resulted in practical changes or measurable outcomes. Additionally, some firms made one-off improvements but did not appear to embed these into their processes, while others showed evidence of testing and the use of new tools but could not show the outcomes for customers in vulnerable circumstances.
In relation to financial promotions, it was found that some firms focused mainly on the benefits of a product or service and gave limited information on the risks. Further, there were examples of inadequate monitoring of promotional outcomes, as well as unclear, inaccessible or unbalanced messaging.
The FCA said the examples of good and poor practice in its report were to help firms learn from each other and make improvements, adding that they did not create new regulatory requirements.
The regulator said: “We want firms to help customers make effective, timely and properly informed decisions, and present information that is fair, clear, and not misleading. Customers should have the information they need, at the right time and presented in a way they can understand.
“This is key to firms creating an environment in which customers can pursue their financial objectives. The duty provides the flexibility of an outcomes-focused, rather than a prescriptive approach.”
