Address by Colm Kincaid, Head of Consumer Protection - Policy & Authorisations, to the 10th International PLAIN conference

‘Using Plain Language to Protect Consumers’

I am delighted to join you today at the end of what I know has been a fascinating, thought provoking and highly worthwhile international event, and I thank NALA and PLAIN for the opportunity to speak to you.

I want to start by wishing NALA a happy 25th birthday. NALA has come a long way from its early establishment by volunteers in 1980 to now counting over 50,000 adults amongst those attending its courses run by over 3,900 tutors and volunteers, giving individuals across the country much valued assistance and support.

A lot has happened in Ireland in that quarter of a century but unfortunately the need for NALA has not lessened. Communication manages to continue to grow exponentially more complex (while often equally less meaningful). Indeed the greatest challenge to comprehension yet may only be coming to the fore - that of volume - as technology enables firms to present huge amounts of text and data into a world where people can be expected to make decisions ever more quickly.

Of course, the more things change the more they stay the same. Regardless of how evolved or sophisticated a market becomes, firms still need to engage with their customers in a way that focuses on the best outcomes for those customers. Plain language is an essential part of this.

The Importance of Plain Language

So why do I think plain language continues to be so important? Well, PLAIN puts it admirably on its website:

“Plain language is a way of communicating that everyone in your audience can easily understand.”

This definition of plain language gets to the heart of the matter that, for financial services (as with other sectors), plain language is not just about words. It is about a cultural desire to make sure your customer understands what they are buying and can access the information they may need later when they need it.

Making the Customer a Participant

The cultural importance of proper communication is something we drew attention to in our 2015 Consumer Protection Outlook Report, where we said

".... We expect all firms to demonstrate that their products are fit for purpose - going beyond tick-box and disclosure to ensuring they are fully understood by their customers and are suitable for meeting the needs of their customers. Firms need to move away from relying on legalistic terms and conditions which contain clauses that are either unfair or just simply impossible for consumers to understand. We expect firms to test their products to ensure that they are simplifying products where necessary, using plain language, and going beyond disclosure to ensuring consumers’ understanding before launching as well as during the sales process."

This calls on financial service providers to make their customers active participants in navigating the inevitable complexity of financial services, towards a solution that fits their customers’ needs, both now and in the future. In an age of online forums and mass movement on social media, it also resonates with a renewed desire people have to be more engaged with the firms with whom they transact.

This is an opportunity for firms as well as a challenge. Getting consumer input into the design of products and documentation is proven to bear fruit for firms. When last year we reviewed firms’ compliance with a new requirement to provide annual pension statements, we conducted a number of consumer workshops as well as our traditional review of the firms’ documentation for compliance with our rules. In those workshops, we found that the firms that went beyond the minimum disclosure required by the rules achieved better results in terms of consumers’ level of understanding. The research also showed that customers had a more positive outlook on those providers. When we fed this back to the providers concerned, we did so with a message about the value of getting customer input when designing such documentation.

The Cultural Importance of Plain Language

Plain language therefore goes to the ethical heart of ensuring that the best interests of consumers are protected. It is a way of working that seeks to protect the consumer's best interests by taking care to see that the consumer understands what they need and what the particular product can deliver to meet that need. This is also critical when advising a consumer who is thinking about moving from one product to another. Here, firms have a particular duty of care to see the customer understands what they may be losing out on by giving up their existing product as well as the advantages and disadvantages of the new product.

This is the space into which the approach of firms to plain language needs to evolve: making the consumer a participant in the design of the financial services they are provided with and, thereby, what needs to be communicated to them and how. This does not mean that complexity will go away. However it does mean that there is a greater chance that the complexity (if it must exist in a retail product at all) is explained in a manner that is meaningful for the individual consumer. Financial service providers need to embrace this as a part of their corporate culture if they are to discharge their duty of care to their customers and raise consumers’ confidence in the services they provide.

This duty is made all the greater of course by the imbalance between the information and resources the firm has as its disposal when compared to those of the consumer faced with these decisions.

The role of regulation

The participation of the consumer is also something we are prioritising at a European level, in the context of some of the most complicated retail financial products: packaged retail and insurance-based investment products (or “PRIIPS”). Here, we are working together with other European authorities to develop a three page Key Information Document (or KID) for such products that must be consistent across the industry and clear to understand. This work is being informed by consumer testing across 10 European countries. A key point we will continue to make of course is that communication is not understanding. So, while documents such as the KID are a great step forward, no disclosure document can take the place of proper suitability checks based on a proper understanding of the individual consumer and their needs.

There is also a responsibility on product producers to design products that meet real consumer needs and that consumers can understand. Across Europe, the Central Bank of Ireland and other regulators are placing increasing emphasis on the need for proper product oversight and governance to ensure this is the case. As members of the European Supervisory Authorities' Joint Committee on Consumer Protection and Financial Innovation, the Central Bank of Ireland was instrumental in the development of European guidelines in the area of product oversight and governance across the banking, insurance and investment service sectors. These guidelines include provisions pertinent to this conference's subject matter such as:

• requiring product testing with consumers before launch;
• ensuring charges are transparent for the target market; and
• ensuring that distributors of the product are provided with clear, accurate and up to date information so they can properly advise their clients.

These requirements will supplement existing requirements in our Consumer Protection Code that:

• a regulated entity must ensure that all information it provides to a consumer is clear, accurate, up to date, and written in plain English;
• that key information must be brought to the attention of the consumer; and
• that the method of presentation must not disguise, diminish or obscure important information and firms must make full disclosure of all relevant material information, including all charges, in a way that seeks to inform the customer.
  

Firms’ expectations of consumers
Firms must also look at what it is fair to expect a consumer to comprehend and accurately factor into their decision. This is certainly a challenge we are grappling with in our work on PRIIPs. However, it is also something on which, together with other authorities in the State, we are funding detailed research at PRICELAB. This research will give us an empirical picture of the capacity of an individual to weigh up different factors and compare them when making price related decisions. This, and other behavioural studies, shows the inherent human biases and errors that should compel regulated financial service providers to look beyond mere clarity of words into what needs to be communicated to consumers, when and how, and to take the time and make the effort to do so.

The challenge to firms

Part of what makes customer participation so important when designing products and communications is that it changes the questions firms need to ask themselves:

• What does the consumer need (as opposed to what do I have that I can sell them)?
• What does the consumer want to know (as opposed to what does the firm want to communicate to them)?
• What is the simplest way for this information to be made available to that consumer before sale and over the lifetime of the product (as opposed to how can the firm communicate now so it is covered later if something goes wrong)?
• What is the regulated entity doing to cater for honest consumer error or oversight?
• Will it err on the side of dealing fairly with the consumer, or will it look to fall back onto its legal terms and conditions?

The role of technology
I alluded earlier to the emerging challenges presented by technology and I know this will have been to the forefront of many of your debate and discussion throughout this Conference. Although it poses challenges, I firmly believe that technology (used properly) provides exciting opportunities to involve the consumer in delivering better understanding through plainer language and presentation of information. In particular, it enables consumers to read, reflect, test and view illustrations in a manner that is engaging and educational. Taking place in the comfort of one’s own home or other familiar surroundings, it also potentially gives time and space to consumers to reflect and get comfortable with the financial decision they are about to make. Technology also enables realtime feedback and provides great opportunities for firms to be innovative in how consumers get to be involved in the information that is provided to them. It provides an avenue of communication that firms can and should use to test and explore what their customers want to know and to get feedback on their experience.

Of course, innovation cannot be allowed to diminish existing consumer protections. This is especially important as technology becomes more sophisticated and is used not just to convey information but also to provide advice or recommendations. These protections include a proper suitability assessment and that information must not be hidden away or obscured, or hard to relate back to the sales section of a website or app. This is why we were among the regulators that supported the inclusion in the European Supervisory Authorities’ work plan of a workstream dedicated to exploring the risks and opportunities presented by automated financial advice. Through our membership of that group we will continue to support the proper delivery of these automated services, including making sure that information is presented in plain terms and in a manner that seeks to ensure consumer understanding. This means mitigating risks but also promoting the particular opportunity technology presents at this formative stage to change for the better the way consumers receive financial service information and facilities.

I would like to finish then by once again thanking NALA and PLAIN for the opportunity to speak to you today. As NALA celebrates its 25th year, I know it will be looking not just to the strong legacy of its work to date but also to what plain language should mean for the future. I believe it is a future in which consumers will expect more engagement and tailoring to their individual needs. I also believe it is one where consumers will look to be ever more connected with the entities from whom they receive their services and look to have real confidence in those service providers. There is a great opportunity therefore (and one perhaps unique to this point in time) for financial service providers to make their customers participants in defining what products, service and information they want and what plain language really means for them. NALA, PLAIN and other plain language organisations have a unique expertise to guide financial service providers in this evolution and place understanding and customer participation at the heart of getting it right for consumers.