By: Adele Gray
29/10/2024
What is Consumer Duty?
Consumer Duty refers to the rules and legal requirements put in place by the Financial Conduct Authority to improve Consumer protection for financial-services firms within the UK. The rules, which came into effect in July 2023, are designed to ensure that retail financial service businesses always put the interests of their customers at the forefront of their overall operations. Key Responsibilities for Firms include:
- Delivering good outcomes for consumers.
- Ensuring clear, transparent communication.
- Providing support to help consumers make informed decisions.
- Offering products and services that meet the consumers’ needs and circumstances.
- Monitoring and reviewing the effectiveness of documents and communications.
What Is Consumer Duty Document Testing?
Consumer Duty Document Testing refers to the assessment and review of customer-facing documents (e.g. terms & conditions, product brochures, disclosures) to make sure they comply with the requirements of the Consumer Duty. The overarching principle is for firms to “deliver good outcomes for retail clients” and a clear focus, regulator has highlighted, should be around communications and marketing.
Firms must therefore:
- Support consumer understanding by ensuring that their communications meet the information needs of retail customers.
- Ensure communication is clear, fair and not misleading.
- Communications are tailored to take account of the characteristics of the customer (including vulnerability).
- Ensure that information is accurate, relevant and provided on a timely basis.
- Communications should be checked for customer understanding.
- Communications are tested monitored and adapted to support good outcomes for retail clients
In doing this, firms will ensure clarity, accuracy, and transparency, avoid mis-selling or consumer confusion, help consumers make informed and confident decisions and meet the Consumer Duty regulation.
Testing applies to all communication materials, including digital and printed documents such as brochures, terms, conditions, and contracts.
When to Test Consumer Duty Documents
Documents can be tested at a variety of times and for a variety of reasons. For example:
- Pre-launch of a new product
- Documents should be tested before launching new products or services to ensure they meet Consumer Duty standards from the outset.
- Ongoing Reviews
-
- Firms should implement continuous monitoring and periodically test documents to ensure they remain clear, up-to-date, and compliant with the evolving needs of consumers.
- Trigger Events
- Testing should occur when there are significant changes in product terms, regulatory updates, or customer feedback that raises concerns about communication clarity.
What to Focus on During Consumer Duty Document Testing
To ensure compliance with the regulation, there are a number of factors to bear in mind when testing documents:
- Clarity and Simplicity
- Always ensure plain language is used and avoid jargon. Documents should always be easy to understand for the target audience, with important information clearly highlighted.
- Accuracy of Information
- Check that all facts, terms and product descriptions used are correct and free of misleading content. It is also key to be consistent between various documents (e.g. website, marketing, product leaflets).
- Transparency
- Make sure that risks, costs, and terms are fully disclosed and test how easy it is for consumers to find critical information within the document.
- Suitability for the Target Audience
- Consider the specific needs of vulnerable or less financially aware consumers. Test if the documents cater to these groups without causing confusion or harm.
- Accessibility
- Test the document’s readability across different platforms, so that it is accessible to individuals with disabilities, e.g. through alternative formats.
How to Test Consumer Duty Documents
There are several ways and methods of testing documents. These include, but are not limited to:
- Internal Reviews
- Firms may conduct internal audits and reviews with legal, compliance, and client service teams to identify potential gaps. This takes a considerable amount of time and internal resource.
- Consumer Panels and Focus Groups
- Use real consumers to review and test documents for clarity, comprehension, and accessibility and gather feedback on whether they understood the content and felt informed.
- Usability Testing
- If documents are digital (e.g. online terms or product disclosures), usability testing can ensure that the layout and design of information help, rather than hinder, consumer understanding.
- Surveys and Feedback Tools
- Collect ongoing customer feedback on document clarity through surveys and post-purchase reviews.
- Automated Tools
- Use automated document review software to identify readability issues, jargon, and inconsistencies.
Challenges in Consumer Duty Document Testing
As briefly touched upon, there are several challenges that must be faced when document testing. First and foremost, is of course use of internal resource and cost. Other challenges can include:
- Balancing Legal Requirements and Simplicity
- Some documents require legal terminology that may be difficult to simplify. Ensuring compliance while maintaining clarity can be an ongoing task.
- Keeping Documents Up to Date
- As regulations and products evolve, updating all related documents can be time-consuming and require extensive cross-department coordination.
- Catering to Diverse Consumer Needs
- Different consumer segments have varying levels of understanding, especially vulnerable groups. Ensuring that a document is understandable for all, without oversimplifying for more knowledgeable consumers, can be challenging.
- Resource Constraints
- Regular and comprehensive testing requires dedicated resources, both in terms of time and personnel, which can be a challenge for smaller firms.
How Can Research in Finance help?
Our Communications Compass is a community testing solution designed to ensure that your marketing communication materials are meeting the regulatory requirements. The FCA has indicated that all client communications will need to be continually monitored post-implementation of the duty. Communications Compass allows for both testing and re-testing of specific materials by our proprietary panel of a cross-section of consumers, including vulnerable clients, resulting in a templated report card that reveals a variety of overall indicators, anonymised competitor positioning, suggested improvements, and more.
For more information on how your firm could benefit from joining Communications Compass, please get in touch with Mick Hrabe or Richard Ley. You can also call us on +44 (20) 7104 2235.