The FCA’s discussion paper on Smarter Communications issued last week can simply be described as revolutionary.
This is effectively the regulator saying to the industry; go and develop your communications, all of your communications, so that they fit around the information needs of your customers more effectively. And if you have any particular radical or innovative ways of achieving this objective, then let us know, and by all means test them.
A brave new world
This is quite a departure from the regulatory approach of old, which saw many communications drafted by reference to a combination of prescriptive rules laid down in the regulatory handbook, and the need to make communications interesting for the customer to read.
As a result of which, in my experience, the approach generally taken has historically been to separate marketing and promotional materials from the “compliance” ones. This meant that all the effort to produce customer-friendly brochures and letters went into the point of sale promotional material, as well as the accompanying brochureware. What were seen as the “compliance” documents, including key features documents, policy terms & conditions, policy schedules etc, were drafted with a “tick box” approach in mind. Here the focus was on making sure that the exact requirements of the relevant rules were met, and in the case of terms & conditions, these had to reflect all of the company’s rights and obligations properly and to the letter. As a result, these documents tended not to be customer-friendly in terms of their writing style, particularly terms & conditions, which were very much the company’s documents.
A radical approach
But the FCA has now concluded that this approach doesn’t really work, partly through the results of its investigations using behavioural economics. The challenge being given to the industry now is to draft all of its documentation and communications with the customer front and centre.
Taking terms & conditions as a prime example, the FCA says its investigations have concluded that people generally don’t read these documents, mainly because they are often hard to understand and are seen as small print. Now the FCA wants firms to think more closely about how the customer would read these documents and how they would get the information that they actually need from them.
There are some interesting examples of innovative communications approaches shown in the paper. And in the case of terms & conditions, one suggestion that’s been made is to put the most important points into a summary document and then provide signposts to where the additional information can be found.
For many in the industry, this is likely to require a radical change of thinking. The traditional approach to terms & conditions has been to treat them as “the rules bit” and the primary driver has been to make sure that the wording is technically correct without worrying too much about the language.
Innovation is the key
The FCA has also taken the opportunity to reinforce the existence of Project Innovate, which is its way of encouraging firms to try out new ways of communicating with customers. Potentially the end result could be changes to rules if a better way of achieving a particular goal is found.
The combination of the FCA’s new approach to communications and the existence of a channel through which to test new ways, with the regulator’s blessing, of communicating , is a significant change in the way in which regulators have approached this issue in the past.
Yes, the movement of principles-based regulation to front and centre has given firms the opportunity to be a bit more flexible in some of their approaches but never like this before.
The challenge now for firms is, to what extent does this Discussion Paper present an opportunity to overhaul their approach to communications, and do they have their training needs covered?
A need for training
First of all, these changes have to be understood in terms of not just the overall regulatory approach, but also the FCA’s attitude to conduct risk, for example, and how that can be effectively mitigated through effective communications. If a change in approach to communications is to be taken, then the level of understanding of the appropriate staff on this particular subject may need to be revisited.
Another point to consider is that radical approaches to promotional materials still have to be compliant. Despite the fact that the FCA is encouraging new ways of communicating, the rules around financial promotions have effectively stayed the same and must still be complied with. Perhaps this is the time to reinforce people’s understanding of these rules before embarking on new communication strategies.
Also, in terms of those “ compliance” documents such as terms & conditions, an understanding of the current rules regime, not just from the point of view of the FCA but the PRA as well, will be required, as both sets of rulebooks are going through a significant degree of change at the moment. Doing things differently in terms of communications still requires an understanding of what the rules say, even though they may not drive the actual words used.
Achieving the objectives
There are many different ways in which these training needs can be met. People can be put through programmes of study leading to qualifications, they can attend conferences and seminars, or training firms can be employed to provide in-house training programmes.
All of these can be accessed through Industry Events Online.
So before the opportunities presented by the FCA are taken, it may be wise to check your training needs first.
By Martyn Oughton a Professional Member of the International Compliance Association (ICA). Martyn now writes a regular blog for Industry Events Online focusing on the importance of training in all aspects of compliance. Read Martyn's other publications at Martyn's Writers' Residence website.
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