Consumer Understanding Under the Microscope: FCA Flags Progress and Persistent Gaps
The FCA has published its latest multi-firm review, Consumer understanding: good practice and areas for improvement (March 2026), examining how firms are delivering on the Consumer Duty’s Consumer Understanding outcome.
The findings present a clear and consistent message: while many firms have taken meaningful steps forward, significant gaps remain in how effectively communications support customer decision-making.
At its core, the Consumer Duty requires firms to provide information that customers can understand, at the right time, to enable informed decisions. The FCA reinforces that responsibility cannot be shifted onto consumers if communications fail to achieve this.
This latest review, part of the FCA’s ongoing supervisory focus, sets out where firms are making progress and where more fundamental change is still needed.
Key FCA Findings
The FCA’s review highlights a mixed picture in how firms communicate with retail customers under the Consumer Duty:
Notable Improvements: Many firms have taken the Consumer Duty seriously and made tangible improvements to customer communications. The FCA observed firms simplifying language and layout, with some introducing internal “jargon buster” tools to remove complex terminology. Larger firms, in particular, have adopted risk-based prioritisation of communications and embedded consumer testing into their processes.
Remaining Gaps: Despite progress, many communications remain overly complex and insufficiently consumer-focused. Lengthy terms and conditions and policy documents are still common, often written at a reading level equivalent to age 17–18 or higher. In many organisations, a true cultural shift towards plain language has yet to take hold, with legal and underwriting teams continuing to favour technical or “safe” wording over clarity.
Testing and Effectiveness: The quality of consumer testing varies significantly. While most large firms conduct some form of testing, in some cases this has become a box-ticking exercise rather than a meaningful feedback loop. The FCA notes instances where firms repeatedly test documents without clear purpose, or rely on positive test results that do not reflect real customer outcomes. A document “testing well” in isolation does not demonstrate compliance if customers are still unable to make informed decisions.
The overall picture is clear: firms that prioritise clarity, meaningful testing, and customer-centric design are making progress others are not.
Good vs Poor Practice
The distinction between good and poor practice is not subtle it reflects fundamentally different approaches to customer outcomes.
Good Practice
The FCA identified several examples of firms improving consumer understanding effectively:
Clear, well-timed information: Firms are using layered disclosures and improved design to highlight key information at the right moment. Important details, such as fees or exclusions are presented upfront or during critical decision points, rather than buried in documentation. Content is written in plain language, supported by clearer layouts and more accessible digital journeys.
Consumer-centric design: Some firms are actively designing communications through the customer’s perspective. This includes avoiding behavioural bias in marketing and ensuring balanced information is presented. For example, firms have adjusted messaging to reduce over-emphasis on incentives and redesigned journeys to highlight key risks before decisions are made.
Proactive and tailored communications: Firms are increasingly using data to identify customers who may not be receiving value and intervening with targeted communications. This includes prompting customers to review products, consider alternatives, or take action. These interventions are monitored to assess whether they lead to improved outcomes.
Testing and feedback loops: Firms demonstrating good practice are validating whether communications work in practice. This includes using surveys, focus groups, and behavioural analysis to assess understanding. Importantly, this testing is ongoing, with firms refining communications based on real customer outcomes rather than one-off exercises.
Poor Practice
The FCA also highlighted several recurring weaknesses:
Jargon and complexity: Many firms continue to rely on technical, legalistic language that is difficult for customers to understand. High reading levels and dense documentation remain a significant barrier to effective communication.
Lack of transparency on costs and risks: In some cases, key information, such as fees, charges, or product limitations, is unclear or insufficiently prominent. This undermines the ability of customers to make informed decisions.
Generic, one-size-fits-all communications: Firms often issue standardised communications that include large volumes of irrelevant information. This forces customers to identify what applies to them, reducing clarity and increasing the risk of misunderstanding.
Tick-box compliance mindset: Some firms continue to approach the Consumer Understanding outcome as a formal requirement rather than a substantive change. Superficial adjustments, minimal testing, and over-reliance on compliance approval processes indicate a lack of genuine focus on outcomes.
What Should Firms Do Next?
In response to these findings, firms should take a more structured and outcome-focused approach:
Review and prioritise communications: Conduct a comprehensive audit of customer communications and identify those most critical to customer decisions. Focus on high-risk or high-impact materials first.
Simplify and clarify content: Rewrite communications in plain English, reduce unnecessary complexity, and improve structure. Use layered approaches to present key information clearly while retaining supporting detail where needed.
Strengthen testing and monitoring: Implement robust, ongoing testing of communications using real customer feedback. Move beyond basic validation and assess whether communications genuinely improve understanding and decision-making.
Evidence improvements: Maintain clear records of reviews, testing, and changes made. Firms should be able to demonstrate how communications have been improved and what impact those changes have had.
Embed consumer-focused governance: Ensure internal approval processes prioritise clarity and customer outcomes. This requires alignment across legal, compliance, product, and marketing teams.
Address different customer needs: Consider accessibility and inclusivity, particularly for vulnerable customers. This may involve adapting formats, channels, or levels of detail to better support understanding.
What This Means for Firms
The FCA’s message is becoming increasingly direct: clear communication is not a compliance exercise, it is a core driver of customer outcomes.
Firms that treat consumer understanding as a design challenge, rather than a disclosure requirement, are making meaningful progress. Those that continue to rely on lengthy documentation, legalistic language, or superficial testing risk falling short of the Consumer Duty’s intent.
The distinction is not simply about wording, it reflects a broader cultural shift. Embedding consumer understanding requires alignment across product, legal, compliance, and marketing functions, alongside a willingness to challenge long-standing practices that prioritise completeness over clarity.
As FCA supervision in this area intensifies, firms will need to demonstrate not just that information is provided, but that it genuinely enables customers to make informed decisions.
