Consumer understanding remains a cornerstone of the Consumer Duty, requiring firms to ensure that communications enable customers to make effective, timely, and properly informed decisions. Recent FCA supervisory work on Consumer understanding, and in particular FG26/2 on good and poor practice in identifying and rectifying Consumer harm, highlights that while progress has been made, material gaps persist, especially in relation to vulnerable customers.
The Regulatory Context
The FCA expects firms to move beyond disclosure-heavy approaches toward genuine comprehension. Under the Consumer Duty, it is not sufficient that information is merely provided, it must be understood and actionable for the target market. The Finalised Guidance on Identifying and Rectifying Harm reinforces this expectation by emphasising that ineffective communication is a key driver of foreseeable harm. Firms are therefore required not only to design clear communications but also to monitor, test, and adapt them based on real customer outcomes.
Good Practice: What Effective Firms Are Doing
- Designing with Consumer Outcomes in Mind
Firms demonstrating strong practice design communications and customer journeys with clear consumer outcomes as the starting point. This involves:
- Using layered, well-structured communications that prioritise key information such as risks, costs, and customer actions
- Avoiding jargon and unnecessary complexity, ensuring information is accessible and easy to process
- Tailoring communications to the needs, characteristics, and capabilities of the target market
Crucially, effective firms do not rely on assumptions of clarity. Instead, they actively test consumer understanding through behavioural testing, comprehension checks, and customer feedback, ensuring that communications are genuinely understood in practice.
- Embedding Consumer Understandingand Harm Prevention in Governance
Leading firms embed both consumer understanding and harm identification within their governance frameworks, ensuring a joined-up approach across the product lifecycle. This includes:
- Integrating consumer understanding into product design and approval processes
- Reviewing communications and outcomes as part of ongoing product governance
- Mapping and reviewing end-to-end customer journeys to identify points of confusion or potential harm
This approach ensures that issues are identified early and addressed proactively, rather than being treated as isolated incidents.
- Effective Use of Data,MIand Testing
Good practice is underpinned by strong use of management information (MI) and customer data to both identify misunderstanding and evidence harm. Firms typically:
- Monitor complaints, call data, drop-off rates, and customer queries as indicators of confusion
- Use customer testing, analytics, and behavioural insight to refine communications and journeys
- Link MI directly to decision-making and remediation activity, ensuring insights lead to action
This aligns with FCA expectations that firms should take a data-led approach to identifying both poor consumer understanding and emerging harm.
- Proactive Identification and Rectification of Harm
Consistent with FG26/2, strong firms take a proactive approach to identifying and rectifying harm, rather than waiting for complaints to escalate. This includes:
- Acting promptly where poor understanding or poor design leads to foreseeable harm
- Conducting root cause analysis to address underlying issues, not just symptoms
- Ensuring remediation is fair, timely, consistent, and clearly communicated to customers
This reflects a shift from reactive compliance to proactive harm prevention and resolution, aligned with Consumer Duty expectations.
Vulnerable Customers: A Central Consideration
A key theme in FCA guidance is the treatment of vulnerable customers. Crucially, vulnerability is not static it is often a transient state, triggered by life events such as illness, bereavement, financial stress, or changes in personal circumstances.
Good Practice for Vulnerable Customers
Firms demonstrating strong performance:
- Recognise that any customer can become vulnerable at any time
- Design communications that are accessible, flexible, and adaptable to different needs
- Provide multiple formats and channels, such as simplified language, verbal support, or assisted digital options
- Train staff to identify, respond to, and support vulnerable customers effectively
Importantly, these firms avoid a one-size-fits-all approach, instead embedding flexibility into both design and delivery, ensuring communications remain effective across a wide range of circumstances.
Areas for Improvement
Despite clear expectations, the FCA continues to identify recurring weaknesses across firms:
- Over-reliance on disclosure: Firms provide excessive, complex information, making key risks and actions hard for customers to identify and use.
- Insufficient testing of understanding: Firms do not adequately test communications with real customers, leading to limited evidence that customers can make informed decisions.
- Weak MI and feedback loops: Data is collected but not effectively analysed or used, reducing the ability to identify issues and drive improvements.
- Reactive rather than proactive approach: Firms tend to act only after issues arise, rather than using data to anticipate and prevent customer harm.
- Narrow approach to vulnerability: Vulnerability is treated as static and compliance-driven, rather than flexible and embedded in customer-focused design.
Practical Considerations for Firms
To align with FCA expectations across both FG26/2 and Consumer Understanding guidance, firms should:
- Embed consumer testing throughout the product and communication lifecycle
- Design communications that are clear, concise, and behaviourally effective
- Strengthen MI frameworks to identify early signs of misunderstanding and harm
- Treat vulnerability as dynamic, ensuring flexibility in both design and delivery
- Implement robust frameworks for identifying, analysing, and remediating harm, consistent with FG26/2
How Complyport can help?
- Training and Capability Building: We offer tailored training to help firms embed good outcomes and strengthen consumer understanding across the organisation. Our training equips staff with the knowledge to support clear communications, identify potential harm, and respond appropriately to customer needs, including those in vulnerable circumstances.
- Identification and Rectification of Harm: We support firms in strengthening their frameworks for identifying and rectifying harm, in line with FG26/2. This includes enhancing the use of management information to detect early warning signs of harm, undertaking root cause analysis to understand underlying issues, and implementing effective and proportionate remediation strategies. Our approach ensures that firms are not only identifying harm but are also taking timely and appropriate action to address it.
- Vulnerable Customer Focus: We help firms embed a proactive approach to vulnerable customers, recognising that vulnerability is often a transient state that can arise at any point in a customer’s journey. We review vulnerability frameworks, policies, and staff training to ensure that firms can identify and respond appropriately to customer needs. We also support firms in ensuring that communications and processes are adaptable, so that vulnerable customers receive outcomes that are as good as those of other customers, were reasonably possible.
Contact Us
To understand how the FCA’s Supervisory work and Finalised Guidance may affect your business, arrange a meeting with one of our compliance experts.
Ask ViCA, your Virtual Compliance Assistant. Claim your complimentary 20 queries today! Register here: https://vica.chat
