New FCA Consumer Duty calls on firms to take poor numeracy into account in their communications
The Financial Conduct Authority (FCA) has published guidance to enable firms to comply with new Consumer Duty rules. These new rules set higher expectations for the standard of care firms give consumers by requiring firms to “act to deliver good outcomes for retail customers”.
We are pleased to see that the FCA cited Plain Numbers as an example of a way to do this:
“Recent work, such as by Plain Numbers, has demonstrated how seemingly small changes to communications can substantially increase comprehension among consumers.” (Guidance 8.13)
These new rules require firms to consider “the needs, characteristics and objectives of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the customer journey. As well as acting to deliver good customer outcomes, firms will need to understand and evidence whether those outcomes are being met.” (Rules 1.16)
Within this new spotlight on vulnerability, we particularly welcome the recognition in the guidance that poor numeracy involving financial concepts is an important factor. We also welcome the expectation that firms “take these characteristics [literacy and numeracy] into account and communicate information in as simple a way as possible to support understanding for these customers.” (Guidance 8.34)
This guidance builds upon earlier work by the FCA showing that poor numeracy is the single most common vulnerability affecting UK consumers:
The Plain Numbers Approach has been developed to address this issue and was tested through Randomised Controlled Trials (RCTs) conducted with market-leading firms. The results of the trials demonstrated that a Plain Numbers Approach can double the number of people who understand the information being communicated.
We therefore welcome the focus on testing products and testing communication, with firms being asked to apply “the same standards and capabilities to delivering good customer outcomes as they are to generating sales and revenue in comparable areas” (Guidance 1.6). The guidance also recognises that Randomised Controlled Trials are “the best way to measure how well a communication is working and would allow the firm to understand baseline levels of understanding and to make and test improvements upon this.” (Guidance 8.57)
The Duty will come into force on 31st July 2023. From then on, firms’ boards must monitor their compliance with the obligations under the Duty at least annually. In addition, by the end of October 2022 boards should have scrutinised and signed off firms’ Consumer Duty implementation plans (Rules 13.13).
The growing number of firms working with us as Plain Numbers Partners are well-placed for this and many other aspects within the Duty because they can demonstrate a practical step they are taking to deliver good outcomes for retail customers by incorporating an evidence-based approach to improve customer understanding.
See the new Consumer Duty Feedback and final rules here and the Final non-Handbook Guidance for firms on the Consumer Duty here