Protecting vulnerable consumers is a key focus for the FCA
The Financial Conduct Authority (FCA) warns that there are now “27.7 million adults in the UK with characteristics of vulnerability.”
Examples of vulnerability include poor health, such as cognitive impairment, life events, such as bereavement or new caring responsibilities, low resilience to cope with financial or emotional upsets and low capability, such as poor literacy or numeracy skills. Not all individuals exposed to these circumstances/characteristics will automatically be deemed vulnerable. Vulnerability is viewed as a spectrum of risk, and can be increased by having these characteristics or being exposed to certain circumstances. It is therefore important for financial services firms to be able to recognise and adapt their processes to the differing needs of their clients, and the level of care that is appropriate, which may be different from that for other clients.
There are also increasing numbers of individuals facing financial difficulty and negative life events since the start of the COVID-19 pandemic. The FCA have brought in additional guidance for financial services businesses to recognise and support their clients by way of payment deferrals for up to six months for those most in need for mortgages, credit cards and personal loans.
The Regulator’s focus continues to drive change on how firms treat vulnerable clients, bringing about a practical shift in their actions and behaviours to ensure that their vulnerable clients experience positive outcomes, which are consistent with the fair treatment of all their customers.
Many firms have made significant progress in how they treat vulnerable clients, which also includes their response to the pandemic. The Regulator, however, has seen examples of others failing to adequately consider the needs of vulnerable clients, thereby leading to harm. It is important for all firms to understand the needs of vulnerable clients and make sure their approach is fit for purpose, meeting the standards set by the FCA’s Principles for Businesses.
The FCA’s Principles require firms to treat customers fairly, and the guidance makes clear what the standards are, what they mean for firms and what is expected of them. While firms are not obliged to implement or follow any of the specific actions described in the guidance, they must meet the standards set and treat customers fairly. Nevertheless, anyone can find themselves in vulnerable circumstances at any time. The FCA’s guidance is relevant to firms serving all retail customers, including some business customers, regardless of the firm’s size or sector.
To achieve good outcomes for vulnerable customers, firms should take action to:
• understand the needs of their target market/customer base
• make sure staff have the right skills and capability to recognise and respond to the needs of vulnerable customers
• respond to customer needs throughout product design, flexible customer service provision and communications
• monitor and assess whether they are meeting and responding to the needs of customers with characteristics of vulnerability, and make improvements where this is not happening
The FCA will hold regulated firms to account against the standards set by the Principles and require them to demonstrate how the actions they have taken and their culture ensure the fair treatment of all customers, including vulnerable customers.