This week, the Financial Conduct Authority (FCA) released an update on its Smarter Consumer Communications initiative.
The initiative, which was launched in June 2015, aims to ‘bring about a change in the way information is both communicated and delivered to consumers’. Now, the regulator has released a Feedback Statement setting out its plans and a Policy Statement outlining changes to disclosure requirements in its Handbook. Both statements are on its website.
What has the regulator’s work to date shown?
Smarter Consumer Communications was borne out of the FCA’s belief that ‘consumers need better practice and a more flexible approach around communications’.
The project is ‘about a change of mindset’ which will see digital channels and technology play a key role in the way consumers research, choose, buy and use financial products.
The FCA aims to ‘ensure that regulation can keep pace with changes in the market and supports innovation’.
Feedback to the discussion paper
Around 75 responses were received to the original discussion paper.
Respondents – representing financial services firms, as well as industry bodies and consumer organisations – identified four main factors that limit innovation and effectiveness:
- Concern about the risks of changing communications, due to uncertainty about the FCA’s and the Financial Ombudsman Service’s expectations;
- The prescriptive nature of legislation;
- Multiple sources of regulation; and
- The complexity of financial products.
What smarter approaches are proposed?
The statement includes examples of innovative communication, both within financial services and in other markets. These range from videos to engage young people with financial topics to increased use of infographics.
Best practice suggestions include:
- The use of ‘plain English’
- Making sure key information is displayed prominently
- Ensuring your content is suitable for your target audience
- Using graphics and images
The need to ensure that digital approaches don’t create exclusion for certain groups is covered – some respondents had pointed out that vulnerable or older consumers might feel marginalised or put off by increased digitalisation.
What’s changing in the FCA Handbook?
As part of this project, the FCA consulted on changes to what it considered ‘ineffective’ requirements in its handbook.
In this week’s announcement, it was confirmed that the rules or guidance around the following disclosures will be removed:
- The ‘Consumer-Friendly Principles and Practices of Financial Management’ (CFPPFM)
- Short report
- Initial Disclosure Document (IDD)/ Combined Initial Disclosure Document (CIDD)
- Combined Initial Disclosure Document (CIDD)/ Services and Costs Disclosure Document (SCDD)’
The Policy Statement outlining these changes can be read in full online.
The regulator sets out its next steps, which include:
- Consult on the publication of ‘good disclosure guides’, including digital disclosure
- Host a Smarter Consumer Communications event to cover key issues
- Help the industry develop guidelines for preparation of suitability reports, to respond to the issues raised in the financial market advice market through FAMR
- Consult on disclosure rules or accompanying guidance where needed
- Revisit its social media guidance to identify innovative approaches that may address concerns, especially around risk warnings
- Investigate where firms provide unhelpful disclosure or risk warnings to consumers that reduce the overall effectiveness of communication
What does this mean for the industry?
As ever, regulation is not standing still.
This update makes it clear that further changes to guidance can be expected. This is in line with trends we’ve seen across the industry in recent years, where increasing regulation and an evolving role are the only things Compliance professionals can rely on.
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