FCA Guidance - Fair Treatment of Vulnerable Customers

• United Kingdom

• Financial services disputes and investigations
• Litigation and dispute management
• Financial services

01-03-2021

In September 2020 our article discussed the Financial Conduct Authority’s (“FCA”) proposed guidance for treatment of vulnerable customers. The consultation period closed at the end of that month and we have since been eagerly awaiting the finalised guidance (the “Guidance”).

The Guidance was published on 23 February 2021 and will be a helpful benchmark for firms, assisting them to respond to the needs of vulnerable customers in the appropriate and expected manner.

Vulnerable Customers

A vulnerable customer is someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care¹. In furthering its objective of ensuring all customers have an appropriate degree of protection, the FCA want to ensure that vulnerable customers experience outcomes on par with other customers, ensuring fair treatment across FCA regulated firms and sectors.

The Guidance applies to all firms involved in the supply of products and services to retail customers who are natural persons, regardless of sector and even if the firm does not have a direct relationship with the customers. Although it does not strictly apply to corporate customers, the Guidance will still be relevant in that context given the overarching expectation to treat customers fairly (FCA Principle 6). The FCA will expect to see fair treatment of company directors and employees for example.

Expectations

The Guidance sets out what firms should do to ensure the fair treatment of vulnerable customers and is split into four key areas:

1. Understanding the needs of vulnerable customers

Firms should have the ability to recognise indicators of actual or potential vulnerability, be sensitive to those needs and offer practical and emotional support. If firms do not do this, it may result in gaps in the provision of suitable services and products and lead to poor outcomes for vulnerable customers.

The Guidance sets out that firms should:

1. understand the nature and scale of characteristics of vulnerability that exist in their target market and customer base. For example, firms that advise on investments and pensions will likely have an older customer base, so common characteristics of vulnerability may involve health and life events associated with old age.

2. understand the impact of vulnerability on the needs of consumers in their target market and customer base, by asking themselves what types of harm or disadvantage their customers may be vulnerable to, and how this might affect the consumer. There is a “spectrum of vulnerability” and firms should respond to the needs of all consumers along that spectrum. For example, a heightened period of vulnerability might be short-term (such as a hospital stay), or long-term (such as long-term unemployment affecting financial resilience). Firms should also understand how vulnerability can be perpetuated or worsened by their own actions, or inaction. For example, if a consumer loses their job or falls ill and is not offered appropriate forbearance measures on their mortgage (where this would be in the customer’s best interests taking into account the overall circumstances), this could lead to greater stress and anxiety. In turn, this could lead to the customer taking actions that may create more harm, such as borrowing from higher-cost sources in an attempt to address the payments shortfall.

The Guidance provides a detailed table² of what characteristics may fall under the four key drivers of vulnerability (health, life events, resilience and capability) which can lead to consumers having additional or different needs. The Guidance also provides examples of harm and disadvantage that firms should be alert to.

2. Skills and capability of staff

Vulnerable customers are more likely to suffer harm when staff do not understand how vulnerability is relevant to their role, or if frontline staff do not have the skills and capability to recognise and respond to their needs.

The Guidance sets out how firms should:

1. Embed the fair treatment of vulnerable consumers across the workforce. All relevant staff should understand how their role affects the fair treatment of vulnerable consumers;

2. Ensure that frontline staff have the necessary skills and capability to recognise and respond to a range of characteristics of vulnerability;

3. Offer practical and emotional support to frontline staff dealing with vulnerable consumers.

These measures should be proportionate and can include sharing existing materials on vulnerabilities with their staff, or by holding informal information sharing sessions for staff, or training sessions.

The above can help frontline staff to actively listen out for information that could indicate vulnerability and encourage disclosure to respond to the customer’s needs. This will then need to be recorded and accessed in a prompt, consistent and fair way, achieving immediate action and reducing future harm. GDPR compliance is also key given that this exercise will often involve recording special category personal data.

3. Taking Practical Action³

Firms should take into account the needs of vulnerable customers in their product and service design, customer service and communications. Where firms design products and services that do not take into account the needs of vulnerable consumers in their target market and customer base, there is a risk that these consumers can suffer harm as their needs may not be met (even from the start).

The Guidance sets out how firms should:

1. consider the potential positive and negative impacts of a product or service on vulnerable consumers, and design products and services to avoid potential harmful impacts.

2. take vulnerability into account at all stages of the product and service design process, including idea generation, development, testing, launch and review. This will result in sales processes meeting customers’ needs as the aim will be for customers to feel able to disclose their needs.

4. Monitoring and Evaluation⁴

Firms should monitor the actions they are taking to ensure they treat vulnerable customers fairly and that the outcomes vulnerable customers experience are akin to other customers. The Guidance does not require firms to monitor or report on specific metrics, but firms need to ensure they are able to demonstrate how their culture and processes result in the fair treatment of all customers.

In order to achieve this, firms should implement appropriate processes to evaluate where they have not met the needs of vulnerable consumers, so that they can make improvements. Firms will also need to keep consistent and produce and regularly review management information, appropriate to the nature of their business, on the outcomes they are delivering for vulnerable consumers.

Enforceability

The Guidance is not to be treated as a checklist. Instead, firms will need to use their judgment to understand what the Guidance means to them. This will depend on the specific context of the firm, including its size, the markets it operates in, the products it offers and the characteristics of its target market and its customers.

Firms can expect to be asked to demonstrate how their business model, the actions they have taken and their culture ensure the fair treatment of all customers, including vulnerable customers. This may extend to providing the FCA with the information they are using to monitor the outcomes of their actions.

Comment

It is clear that the Guidance aims to drive improvements in the way firms treat vulnerable customers so that they are able to achieve positive and consistent outcomes for every vulnerable consumer. It is known that anyone can find themselves in vulnerable circumstances at any time and this Guidance has come at a pivotal time during the Covid-19 pandemic. Covid-19 has had a profound negative effect and put many people at a greater risk of harm due to the pandemic effects such as bereavement, physical health, mental health and financial resilience.

Vulnerability must be taken seriously by all firms. The onus is on the firm to create and maintain a culture that enables firms to identify vulnerability, and avoid the potential for harm to vulnerable customers by providing appropriate support and ensuring there is appropriate signposting for customers to seek help.

[1] p3, FG21/1 Finalised guidance; Guidance for firms on the fair treatment of vulnerable customers

[2] p10, FG21/1 Finalised guidance; Guidance for firms on the fair treatment of vulnerable customers

[3] p24, FG21/1 Finalised guidance; Guidance for firms on the fair treatment of vulnerable customers

[4] p43, FG21/1 Finalised guidance; Guidance for firms on the fair treatment of vulnerable customers

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