The UK financial services landscape continues to evolve under the Consumer Duty framework (PRIN 2A), with the Financial Conduct Authority (FCA) placing clear emphasis on ensuring customers have a sufficient understanding of the financial products and services they use.
In their latest publication, Consumer Understanding: Good Practice and Areas for Improvement, the FCA provides valuable insights into how firms are embedding the Duty in practice, highlights where progress is being made and identifies areas where firms must do more to ensure consumers made informed financial decisions.
The focus of the FCA’s message centres around ensuring that consumers receive correctly timed information they can understand in ways that enable them to act confidently in their financial interests.
The Consumer Understanding Outcome
Consumer Understanding is one of the Four Key Outcomes of the Consumer Duty. The FCA expects firms to ensure that communication and customer journeys help consumers understand:
- The features and risks of products and services;
- The costs and charges for products and services; and
- The implications of the decisions they make.
When information is clear and meaningful, customers are better positioned to pursue their financial objectives and avoid foreseeable harm. This requires firms to go beyond only providing disclosures and actively takes steps enabling customers to interpret and use provided information in decision making.
What Is Good Practice?
The FCA’s review highlights several examples of how firms are taking proactive steps to enhance customer understanding and embed the Duty across their operations.
- Testing Communication
Leading firms are working with communication and behavioural experts to redesign product documentation, digital interfaces and marketing materials. These firms are using simplified language and test communications with real customer to assess how messages are understood and if they influence customer behaviour in positive ways.
Analysing customer engagement and comprehension allows firms to refine communication and ensure it supports informed decision making.
- Monitoring Customer Behaviour
Another area of good practice involves using data and feedback mechanisms to understand how customers interact with products and services. Some firms have introduced tools including customer feedback panels and survey, behavioural analytics to monitor decision making patterns and structured monitoring of communication effectiveness.
These insights allow firms to identify where misunderstandings occur and make targeted improvements to the customer journey.
- Effective Service Channels
Firms are also enhancing support channels to ensure customers can obtain help when they need it. This aligns with the broader aim of the Consumer Duty to deliver good customer outcomes in practice, not just in documentation.
Areas for Improvement:
The FCA also identified several areas where firms must strengthen their approach to consumer understanding:
- Matching Customer Risk Profiles
The FCA observed instances where firms promote complex or high-risk products to customers who may not fully understand them. In some cases, firms have relied on long-standing customer relationships to downplay risks or encourage unsuitable investments.
Such practices undermine trust and conflict with the Consumer Duty requirement to ensure products are aligned with customers’ needs, characteristics, and objectives (PRIN 2A.4 – Products and Services Outcome).
- Cost and Charges Transparency
A reoccurring issued identified unclear explanations of fees and charges. The FCA notes that firms should consider providing worked examples of product costs, helping customer visualise how charges accumulate over time or affect the value of their investments.
Greater transparency around costs and charges products more effectively and make informed decisions.
- Staff Training
Customer understanding is not exclusively driven by written communication. The FCA expects firms to ensure that customer-facing staff are adequately trained to have complex and sensitive conversations with customs, especially when vulnerabilities of financial difficulty may be present.
When staff lack appropriate training, customers may receive generic responses rather than tailored support that reflects individual circumstances.
- Digital Customer Journeys
The FCA expressed concerns about digital design practices and “gamification” in trading apps that may encourage excessive or high-risk trading behaviours.
Firms must ensure that digital experiences and customer journeys are designed to support good customer outcomes rather than encourage impulsive or harmful decision making.
Embedding Consumer Understanding
The FCA’s findings reinforce that consumer understanding is not solely a compliance exercise. Responsibility must be embedded across the organisation, including:
- Product design
- Marketing and financial promotions
- Customer support
- Governance and oversight
Embedding Consumer Duty principles requires:
- Board-level oversight of customer outcomes
- Effective data, monitoring, and management information (MI) frameworks
- A firm-wide culture focused on delivering good customer outcomes
Firms that successfully embed these principles are more likely to meet regulatory expectations and build stronger, more sustainable customer relationships.
Impacts on the Industry
The FCA’s review sends a clear signal that the quality of customer communication and understanding will remain a key supervisory priority. Firm’s that take a proactive approach, including providing simplified communications, testing customer comprehension and improving support frameworks will be better positioned to deliver sustainable outcomes for customers.
The Consumer Duty represents a shift from technical compliance to meaningful consumer engagement and interaction, and the FCA continues to emphasise that financial services must work in practice for the customers they are designed to serve.
How Complyport Can Help
The expectations of the Consumer Duty require firms to go beyond written policies and demonstrate real evidence of customer understanding and positive outcomes. Complyport provides expert regulatory support to help firm assess, strengthen and embed their Consumer Duty frameworks.
Our experienced team can help you with:
- Consumer Duty Gap Analysis: Assessing firm’s governance arrangements, policies and customer journeys to identify gaps in FCA expectations and development practical implementation strategies.
- Customer Communication Reviews: Evaluating product documentations, financial promotions, website content and customer communications to ensure they are clear, fair and not misleading and support customer understanding.
- Monitoring Frameworks: Supporting development of robust monitoring frameworks including metrics and management information that enable firms to tract customer outcomes and comply with the Consumer Duty.
- Staff Training: Providing targeted training programmes to ensure employees understand their responsibilities under the Consumer Duty and provide tailored support to customers.
Contact Complyport today to arrange a meeting with one of our Subject Matter Experts and ensure your firm is fully aligned with Consumer Duty expectations.
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