The Consumer Understanding outcome is designed to ensure that firms support and enable consumers to make informed decisions about financial products and services. Firms will be required to provide information consumers need, at the right time, and presented in a way they can understand.
How do we know it's working?
Firms will be required to test their communications to assess how they are understood. Testing can take different forms and the FCA has set out different approaches that firms can take in FG22/5. The FCA has clarified that firms should continue to comply with existing disclosure requirements (e.g. disclosures prescribed under the Consumer Credit Act 1974), but will need to think more widely about the purpose of their communications and the outcomes they are focused on, to meet the FCA’s expectations under the Duty.
Where a firm has to communicate complex information, it should consider what additional steps it can take to support consumer understanding. The FCA has suggested that a layered, hierarchical approach can be helpful in providing context or explaining key information upfront in a simple way.
The FCA also clarified that if a firm isn’t authorised to provide advice, it should equip its customers with information to make effective decisions in a way that does not amount to advice.
A bit of context
A prospective customer, or consumer can only be expected to assume responsibility for their own decisions when a business’s communications have made it possible for them to make sense of their goods and services, as well as the risks and benefits they carry. In short, the consumer needs to be served the right content to help them make better buying decisions. This is true in just about any buying journey, but even more important when it comes to buying financial products and credit services.
What is the goal of the Consumer Understanding outcome?
The goal of the Consumer Understanding outcome is to make sure that businesses assist and empower customers to choose financial products and services wisely. Companies are required to give potential customers the information they need, when they need it, and in a format they can make sense of - hence the “Consumer Understanding” outcome. This is a crucial component of businesses establishing an environment where customers can pursue their financial goals.
Companies will have to put their communications to the test to see how well they were understood, and be able to demonstrate this.
When evaluating whether their communications provide customers with the right information at the right time in order to make informed decisions, businesses should "put themselves in their customers' shoes."
A decision will often be considered effective if it increases the possibility that the consumer will successfully experience an effective outcome.
The FCA has outlined a number of strategies that businesses might use in testing the effectiveness of their content, and whether this has led to the customer understanding their financial products and services better.
Different types of testing are possible, and the FCA has outlined many strategies that businesses might use.
In order to meet the FCA's expectations under the Duty, the FCA has made it clear that while firms should continue to adhere to current disclosure requirements (such as disclosures mandated under the Consumer Credit Act 1974), they also need to think more broadly about the purpose of their communications and the outcomes they are focused on.
A company should think about what additional measures it may take to improve consumer understanding when communicating complex information.
The FCA has said that a hierarchical, layered approach can be useful in giving context or simply outlining important information up front.
The FCA also made it clear that businesses that are not authorised to give advice should provide their clients with informative content so they may make informed choices in a way that doesn’t constitute advice.
These rules apply at every stage of the customer buying cycle - including marketing, sales, and after-sales services.
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