Vulnerable customers, FCA states "There is still room for improvement" and consults on draft guidance
The Financial Conduct Authority (FCA) has adopted the protection of vulnerable customers as one of its key priorities. Whilst the FCA recognises that most firms want to "do the right thing" it feels that there is still room for improvement and consistency across sectors. Accordingly, following engagement with various stakeholders and drawing on insights from its supervisory work, the FCA has published for consultation draft guidance on the treatment of vulnerable customers.
In the introduction to the draft guidance the FCA explains that:
Ultimately, we want to see firms doing the right thing for vulnerable consumers, and embedding this in their culture..............The proposed guidance aims to ensure consistency of outcomes for vulnerable consumers, regardless of the sector in which a firm operates
The FCA recognises that this approach is not without challenges, considering the diversity and differences between the firms and it is therefore taking a two stage approach. In this first stage it is seeking feedback from firms on the impact and practicality of their proposals by 4 October. After this the FCA will review responses and issue a revised draft (together with any other proposed interventions they feel are necessary) for further consultation.
What is vulnerability?
Following the approach in the FCA Approach to Consumers mission statement, a vulnerable consumer is defined as:
someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care
The FCA draft guidance focusses on the following four key drivers in a customer's personal circumstances which can cause vulnerability, or a risk of vulnerability.
- health - health conditions or illnesses that affect the ability to carry out day to day tasks
- life events - major life events such as bereavement or relationship breakdown
- resilience - low ability to withstand financial or emotional shocks
- capability - low knowledge of financial matters or low confidence in managing money
The FCA also notes that vulnerability is often transient, because consumers' circumstances constantly change noting that the FCA's Financial Lives Survey showed that at any time:
50% of UK adults display one or more characteristics of being potentially vulnerable.
Approach of the draft guidance
The draft guidance calls for firms to:
Understand and consider the effect of vulnerability on their target market and customer base by:
- establishing the nature and scale of drivers of vulnerability present;
- identifying the impact of vulnerabilities on the needs of their consumers; and
- considering how vulnerabilities could affect the customer experience and customer outcomes.
Train, empower and support staff to:
- understand a range indicators of actual and potential vulnerability, and the needs that arise from these;
- be able to engage with customers to seek relevant information to understand their vulnerability;
- recognise indicators that a customer is vulnerable and warrants additional support;
- record and follow up on vulnerability information, providing sensitive and appropriate support; and
- be flexible to the different needs of such consumers.
Anticipate the needs of vulnerable customers in product and service design at all stages to:
- avoid impacts that deliberately or inadvertently exploit customers in vulnerable circumstances; and
- introduce and improve features designed specifically to deliver positive outcomes for vulnerable customers.
Communicate effectively :
- to ensure the information needs of such consumers are adequately met and that products and risks are properly understood;
- make vulnerable customers aware of the options available to them for help, including, where relevant, third-party support and representation, ensuring specialist services offered are accessible and easy to use; and
- internally, ensuring systems are in place to record information on the needs of vulnerable customers and make that information accessible to all relevant staff.
Review and react
- with appropriate internal processes to ensure that vulnerability issues are reassessed at appropriate times in the customer relationship; and
- on a broader firm wide basis to ensure that lessons are learned from customer experiences.
How should firms respond?
The consultation paper is a thoughtful document and gives many helpful examples of the FCA's view of good and bad practice. (Click here for a copy of the consultation paper). Firms will find food for thought in these as they consider their internal procedures and practices. Firms may also want to consider the practical implications of the guidance for their own sector and business models and feed back to the FCA on any practical or cost concerns they have before the consultation deadline of 4th October.