Regulators clarify communication rules for financial services firms
Communication with customers in the UK retail investment market is challenging! This is largely due to the overlapping regulatory regimes in this area. Until now, it has been unclear how the FCA’s ‘Consumer Duty’ and The Pension Regulator’s (TPR) Code of Practice interact with the ICO’s Direct Marketing Rules and Data Protection laws.
FCA Regulated Firms acting for retail customers have a duty to put their customers' needs before their own, the FCA 'Consumer Duty'. This is a regulatory framework underpinned by rules and four defined outcomes. These explain how firms should communicate with customers. Alongside this, Pension Providers have specific requirements to issue communications under TPR's Code of Practice. The FCA and TPR therefore sought clarity from the ICO on how the regulatory requirements to communicate to retail customers and pension scheme members interact with direct marketing rules and data protection law.
Last week, the ICO, TPR and FCA issued a joint statement clarifying this interaction. They emphasised that UK data protection laws do not prevent financial services firms from providing regulatory communication messages to retail customers or pension scheme members.
How can you send regulatory comms without consent?
The regulators confirmed that you can send regulatory comms where you don't have marketing consent if you are sending a "service message". This means you can issue neutral, factual information that allows retail customers and pension scheme members to make informed decisions about retail investments and pensions options, including at retirement. The messaging must not be classified as ‘direct marketing’, which would require consent under the relevant regulatory rules.
Simply put, you must avoid active promotion when communicating facts. The regulators issued a non-exhaustive list of what (when communicated neutrally) would be considered a "service message":
- A message warning a customer that they might not have enough pension income in retirement due to their existing contribution rates; or from drawing down on their pension too aggressively.
- Informing a customer about their pension or retail investment products or services. Examples include explaining jargon and signalling where consumers can go for support.
- Notifying a client of the ability to consolidate their pension pots, where appropriate. Additionally, the relevant factors around consolidation should be communicated.
- Accurately describing different decumulation options to help customers make informed choices.
- Signposting to free tools, such as pension tracing tools and savings or retirement income calculators.
- Informing a customer they are being transferred to another pension scheme.
- Giving a child trust fund owner important information about their account, where the account was opened for them during their childhood.
- Notifying a customer of any unused ISA allowance towards the tax year end. Or, informing customers of their options as they near the end of a term deal.
This clarification provides much needed certainty to regulated firms. It establishes that regulatory communications can benefit from a relaxation of marketing laws. Remember, this only applies where the content of these ‘service messages’ is neutral, as intended by the Regulators.
So, what are the regulatory requirements in detail?
Data Protection / Privacy
Data protection laws don't prevent firms from sending ‘service messages’ that tell customers important information that they need to know as part of their relationship with the firm or pension scheme: i.e. purely administrative for customer service purposes. However, messages which contain promotions or advertising are in scope of the data protection/marketing laws as 'direct marketing'.
Direct marketing means “the communication (by whatever means) of advertising or marketing material which is directed to particular individuals”. Direct marketing must be fair, lawful and transparent. To do this, you must:
- Provide people with a right to object to and ‘opt-out’ of direct marketing.
- Not send automated phone recordings, emails, texts or direct messages on social media to individuals unless:
- they have specifically consented; or
- you have a ‘soft opt-in’ (from experience, this is limited and impractical for large pension providers / retail investment companies as it doesn't allow group cross-selling).
When a message is not direct marketing, it can be communicated to customers – even if they haven't consented or opted out of direct marketing.
What constitutes 'direct marketing' is often unclear and therefore requires advice on a case-by-case basis to determine the classification. Adopting the key takeaways of this joint statement into internal marketing and comms policies and procedures will help ensure compliance.
Communications required by the FCA Consumer Duty
The FCA Consumer Duty entered into force in full in July 2024, with a shift towards requiring firms to actively focus on good customer outcomes when delivering its products and services.
The FCA Consumer Duty introduced a new Consumer Principle, embedded as Principle 12 in the FCA Handbook, that firms must act to deliver good outcomes for retail customers, both current and prospective. As such, the FCA Consumer Duty has created a higher expectation on firms to ensure retail customer care and protection when distributing financial services which could influence consumer decisions.
Firms are already required to communicate information in a way that is clear, fair and not misleading. FCA Consumer Duty builds on this, and requires communications made by firms to:
- support customers’ understanding by ensure that their communications meet the information needs of customers and are likely to be understood by the intended customer;
- help customers make effective, timely and properly informed decisions;
- be made at appropriate times, including when any relevant changes have taken place, to prompt customers to consider if the products or services continue to meet their needs;
- be tailored to take account of the characteristics of the intended customer, including a customer’s vulnerability, the complexity of the product, the channel on which the communication has been made and the role of the firm; and
- adapt in order to support understanding and good outcomes for customers.
- Provide information prior to the purchase of, and at suitable points throughout the life of financial products.
The FCA has therefore sought to ensure firms consider, for example, the form and frequency of their communications to ensure that good retail customer outcomes are achieved by any communication. However, the Principle for Businesses Rules and the FCA guidance provide flexibility for firms to decide how best to achieve this. As is emphasised in the joint statement, the context and the content of any messaging must be considered to determine regulatory compliance.
Communications expected under TPR Code and Guidance
The TPR is aimed specifically at pension scheme providers. This requires broad communication strategies to support their members. Examples include
- Regularly updating members about their benefits and any changes that might impact them. This should include sufficient information and explanations to allow members to make informed decisions.
- Specific mandatory communication events such as:
- When a member joins a scheme.
- When a member begins taking benefits.
- Where there are changes to scheme rules or investment strategies.
- During the run-up to retirement, the different options available, how to access their benefits and any actions they need to take.
- When a member wishes to transfer their benefits to another scheme, information about the transfer value and any implications of transferring.
- For DC and hybrid schemes: Regular updates about how member’s contributions impact their benefits under the scheme.
- Annual Benefits Statements – members must be sent an annual ‘snapshot’ of their scheme detailing accrued benefits, contributions made and projected future benefits.
Conclusion
To summarise, regulated firms can rest easier, knowing that where regulatory messages are issued in a neutral and informative tone, they will benefit from a relaxation of marketing laws. If you have any questions about this article please reach out to your usual DLA Piper contact, or Linzi Penman.