Keep it snappy – FCA statement on smarter consumer communications
This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.
Summary and implications
The FCA recently released its Feedback Statement on Smarter Consumer Communications, reporting on the themes arising from the feedback received to its Discussion Paper on Smarter Consumer Communications.
The feedback statement focuses on the need for simpler, clearer communications that are suitable for the digital world. We have summarised the key points below that should be considered by those in the crowdfunding space.
Smarter Consumer Communications
According to this feedback statement, communication is more effective when the consumers pay attention to the information, have the capacity to interpret it, and are willing to incorporate it in their decision-making process. The FCA identifies a number of principles for designing effective communications:
1. Use plain language with short, understandable messages
A major theme from this paper is the worry that "information overload" can lead to consumers disengaging from the information provided or failing to read it at all. Firms should use jargon-free, simple and short messages to encourage consumers to remain engaged so that they can make the most informed decision possible. Firms should keep this principle in mind with all of their customer communications.
2. Display key information prominently and frame it effectively
Key information should be presented early on by summarising key points upfront and later layering additional information. Firms might consider providing short summaries at the beginning of communications, then adding detail after this initial introduction.
3. Use images and graphics
A number of those who provided feedback pointed to the use of videos or images to explain complex information to its consumers. Provided that videos meet all the applicable rules about financial promotions, they can be a good means of providing consumers with information and also for educating them about complex products.
4. Design targeted communications
Communications should meet the needs of the target audience of consumers. Firms should ensure that their communications are tailored appropriately and, in any event, should cater for the least sophisticated type of investor for any given product or service.
Simpler terms and conditions (T&Cs)
It is clear that the FCA understands the difficulties firms face in encouraging consumers to engage with their contractual obligations under T&Cs, particularly when dealing with consumers online. However the FCA has also said it understands concerns that over-simplifying T&Cs could result in ambiguity and misunderstanding, decreasing contractual protection and increasing risk of litigation.
Despite this, the FCA states that firms should not let the concern of litigation prevent them from making the content of T&Cs more approachable to consumers, in particular by using additional innovative methods of communication like videos or infographics to improve consumer engagement.
Social media and standalone compliance
The FCA also received feedback on its Social Media Guidance, in particular on the standalone compliance requirement of the financial promotions regime. We are aware that the crowdfunding industry has concerns about the difficulty firms face with the standalone compliance requirement, by which each separate financial promotion must contain the relevant risk warnings and disclaimers.
During the feedback, some firms argued that the FCA should consider a "click-through" approach for financial promotions, whereby an initial communication contains a link to another webpage where additional risk warnings and other required statements are shown.
It was argued by some firms that a customer will rarely make a decision based on an initial tweet or banner ad, and that the FCA should consider the customer journey as a whole rather than each individual communication. However the FCA has confirmed that it will not make changes to the general "standalone" compliance requirements.
In particular, the FCA states that, because it is difficult for a consumer to "un-see" any initial communication, each communication must be balanced in its own right – in compliance with the general rule which requires each communication to be "fair, clear and not misleading".
Future performance projections
The feedback statement echoes concerns voiced by the crowdfunding industry surrounding the regulatory framework for the use of financial projections and illustrations in consumer communications. The FCA confirms that it does not plan to review its approach to this area, stating that these rules are driven by prescriptive EU law and therefore cannot be varied by the FCA.
Next steps
A common view of those who provided feedback was that the regulatory requirements related to consumer communications would benefit from further review, given that an increasing number of consumers use social media and digital services as a preferred method of communication with firms. It is clear from this feedback statement that the FCA wants consumer communications to be clearer and simpler to understand. It is also encouraging to see that the FCA welcomes innovative uses of technology to present information in a more engaging way. The FCA confirmed that it will be hosting a Smarter Consumer Communications event to discuss the key issues raised in this feedback statement. News of when this event will take place will be shown on the FCA's website at their page on smarter consumer communications here.
