RegulationJun 25 2015

FCA calls for innovative disclosure

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FCA calls for innovative disclosure

Consumers’ ability to make informed decisions is often hindered by information overload, which is a symptom of a ‘tick-box’ approach to communication, firms have told the Financial Conduct Authority.

The Financial Conduct Authority found this as it investigated the difference between its expectations of firms and firms’ understanding of what is required of them, the FCA’s communications discussion paper, published today (25 June), revealed.

The paper is aimed at encouraging firms, consumer groups and stakeholders to deliver information to consumers in smarter and more effective ways.

The paper challenges firms to consider innovative ways of engaging with consumers about products and services, for example by using videos, infographics or other new approaches to present information clearly and in a way that is easy to understand.

Christopher Woolard, director of strategy and competition at the FCA, said: “All too often customer communications are so technical that even the most astute consumer would struggle to understand the information.

“Communications play a fundamental role in helping consumers make decisions about the products and services they buy which is why it’s so important that we work with firms to get this right.”

The paper noted that consumers’ ability to make informed decisions is often impeded by regulatory disclosure material that does not provide consumers with the information they need in an accessible and understandable format, along with information overload and excessive use of financial and legal language that stops consumers engaging.

Some firms indicated that these problems are symptoms of a ‘tick-box’ approach to communication driven by uncertainty about our expectations and fear of action being taken against them by the regulator.

The paper welcomed any evidence that any information requirements in the FCA Handbook prevents or inhibits firms from effectively communicating important information to consumers.

“We have considered whether we can change any of our non-European Handbook disclosure provisions to improve their effectiveness,” stated the regulator, adding that it has identified sections that have not been as effective as first envisaged in terms of informing consumers, and therefore intend to consult on their potential deletion.

It also focused on the failings of terms and conditions, which previous work found that almost no one claimed to read and the few that did were left none the wiser.

“Industry roundtables revealed a widespread belief that there is little scope to improve the accessibility of T&Cs because lengthy complex information is required by regulation,” read the paper.

It added that while they still need to constitute the legal contract between the firm and the consumer, many “as they are currently written, provide evidence of an over-disclosure approach that some firms have adopted as a mechanism that they believe mitigates risk”.

Previous thematic work and market studies have revealed that the type of information consumers receive, when they receive it and the way it is delivered can drive both poor and positive outcomes, stated the regulator.

Some firms are already developing new ways of engaging with customers and the FCA wants all firms to consider whether there is room for improvement in their own communications. Examples of smarter communications include:

• communications using plain language, short format, bullet points and clear graphics;

• use of interactive apps to help consumers understand and manage their product;

• the use of infographics to explain complex information and concepts to consumers in an engaging way; and

• use of videos to help consumers engage with the essential terms and conditions of a product.

It gave examples of good practice of Nationwide Building Society developing a series of videos to help prospective customers aged between 11 to 17-years-old to understand key banking concepts, along with Barclays Bank providing online videos designed to help customers use its mobile banking app.

The FCA is seeking feedback on the discussion paper by 25 September.

peter.walker@ft.com