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FCA backs use of technology to improve consumer engagement with financial service communications

Out-Law News | 26 Jun 2015 | 12:46 pm | 2 min. read

Using infographics, interactive apps and videos are among the ways financial services companies can better engage with customers, the Financial Conduct Authority (FCA) has said.

The regulator said it wants businesses in the sector to move away from customer communications filled with "technical" language, and instead find ways to improve their engagement with the information they send out, including by "adopting innovative techniques".

"Information itself does not necessarily empower the consumer," Christopher Woolard, director of strategy and competition, said in the FCA's discussion paper. "Our work on behavioural economics has clearly shown it can overwhelm, confuse, distract or even deter people from making effective choices if presented in a way people struggle to engage with."

"We expect all firms to embed an organisation-wide culture where the importance of communicating effectively with consumers is recognised and prioritised. The information needs of potential customers need to be fully considered when developing a product or service and throughout the lifecycle of that product or service," he said.

The FCA said research it had conducted found that some financial services companies believe the way businesses in the industry communicate is driven by a fear of action being taken against them by the regulator.

This has meant that regulatory disclosures made by some companies do not provide consumers with the information they need "in an accessible and understandable format" and has also resulted in "information overload and excessive use of financial and legal language" being used at times, the FCA said. It said this "stops consumers from engaging with information".

The regulator said that it expects financial services companies to "understand and recognise the importance of communicating effectively with consumers" and "create product and service information for consumers with at least as much behaviourally informed creativity as is applied to business development, marketing and financial promotions". Businesses operating in financial services industries must also "create communications as an integral part of the product or service design process", it said. Many businesses already meet these expectations, it said.

The FCA encouraged financial services businesses to draft communications in a consumer-friendly way first and then check they meet regulatory requirements "rather than the other way round", and objectively consider what consumers need to know, how much they need to know and when they need to know it, as well as what they "actively demand" to be told about.

The FCA said it wants to work with industry to test innovative ways of communicating with customers.

"We will look to work with a selection of firms that submit particularly innovative customer-focused ideas with a strong potential for improved consumer outcomes," the FCA said. "Where an idea has strong potential for consumer outcomes to be improved, we may consider waiving or modifying certain disclosure rules, if appropriate, to facilitate this testing. If the tests are successful, we may also look at how we can use the results more broadly; such as providing a strong evidence base to inform and influence our negotiating strategy when certain EU directives are (re)negotiated or lead to changes in our rules."

The FCA said it plans to consult on reforms to disclosure rules and guidelines later this year to help financial services companies communicate with consumers more effectively.

"We will focus on improving consumer outcomes when considering potential new disclosure requirements or discussing improvements with firms," it said. "If a firm considers we are requiring unnecessary information to be provided to consumers, it should challenge any such request, explaining why its alternative approach improves outcomes for consumers."

Financial services and technology law expert Luke Scanlon of Pinsent Masons, the law firm behind Out-Law.com, said: "This is a positive step from the customer perspective as everyone knows that the current system of focussing on detailed disclosure statements only provides a fictitious level of protection to consumers who either never read the statements or fail to understand the content provided. A number of firms have already begun work in this area and it will be interesting to see how long the FCA gives firms to raise the standard of care taken in terms of clarity of consumer information."