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Final call for responses to FCA vulnerable customers consultation

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management
  • Financial institutions

11-09-2020

Lenders have until 30 September 2020 to respond to the Financial Conduct Authority’s (FCA) consultation on the fair treatment of vulnerable customers and guidelines which are published in the consultation paper GC 20/3.

Firms will need to consider the extent to which their processes and products will comply with the draft guidance and whether changes need to be made. In light of the Covid-19 pandemic the FCA are likely to maintain a strong focus on ensuring that vulnerable customers are treated fairly.

What is a vulnerable customer?

The FCA define a vulnerable customer as one who is “especially susceptible to harm” due to their personal circumstances. Customers may be vulnerable for a number of reasons including their health, capability, resilience or because they have been impacted by a life event.[1]

Lenders should be aware that the FCA’s Financial Lives survey conducted earlier this year suggested that slightly less than half of UK adults over 18 years of age (around 24.1 million people) displayed a vulnerability characteristic.[2] Clearly, the Covid-19 pandemic and its effects on customers’ health and financial security may increase the number of people who find themselves in a vulnerable position.

The FCA expects coronavirus “to have significantly increased the number and severity of issues affecting customers (for example ill health, bereavement and job loss)”.  They conclude that “now more than ever, firms should be paying particular attention to the needs of vulnerable consumers.”[3]

Does this only affect retail services?

The FCA responds to requests for clarification on the application of the proposed guidelines in their latest paper.  They say that the guidelines will apply to “the supply of products and services to retail customers who are natural persons”.  However, it is clear that they will use the guidelines as a benchmark for assessing Principle 6 compliance even where a firm is not dealing with a retail customer.  The FCA notes that corporate customers will have employees who may have vulnerabilities and suggest that it will be necessary to take these into account in order to ensure fair customer treatment.

What do the FCA want to see?

The FCA’s consultation has highlighted certain themes for firms in the treatment of vulnerable customers:

  • recognising vulnerability and responding to customers’ needs;
  • the value of sympathy;
  • the importance of empowered and knowledgeable staff; and
  • addressing communication needs

In short, they want to see the fair treatment of vulnerable customers embedded in firms’ cultures from top to bottom.

Drivers of vulnerability

The FCA have identified four key drivers of vulnerability:

  • Health conditions or illnesses;
  • Major life events such as bereavement, job loss or relationship breakdown;
  • Resilience – low ability to withstand emotional or financial shocks;
  • Capability – low knowledge of financial matters or low confidence in managing money, literacy or digital skills[4]

The FCA’s Financial Lives survey concluded that around 46% of UK adults displayed one or more characteristics of vulnerability related to these four drivers. Certain groups such as individuals who are aged over 75, are unemployed, renters and those without formal qualifications may be more likely to display characteristics of vulnerability. Customers can often be impacted by more than one driver of vulnerability.

The ”Spectrum of Vulnerability”

In their previous Guidance Consultation 19/03 the FCA had referred to customers as either ‘actually vulnerable’ or ‘potentially vulnerable’.  

The FCA have now moved away from this approach to focus on a spectrum of risk of vulnerability. It considers that all customers are at risk of becoming vulnerable and falling within this spectrum of risk. The FCA’s view of the assessment of risk of customer vulnerability is therefore more nuanced than an assessment of whether customers can be classified as either ‘actually vulnerable’, ‘potentially vulnerable’ or ‘not vulnerable’.

The FCA states that customers at the higher risk end of the vulnerability spectrum will be more likely to have multiple and more complex needs to cater for, as opposed to those on the lower risk end of the spectrum.  In their diagram, the FCA illustrate the lower risk end of the spectrum as being broader, reflecting that there are more customers at this end but with less complex needs.[5]  

The FCA are clear that the extent of a customer’s vulnerability will often vary over time and we are all likely to fall onto the spectrum of vulnerability at some point in our lives. For example, a customer may be impacted by life events such as a job loss or may fall ill.

Firms are advised, by the FCA, to take particular care to meet the needs of those who are at the greatest risk of harm. Lenders should also act early to assess whether a customer may become more vulnerable and prevent the risk of harm from increasing. The FCA further advise that firms can achieve this by designing products and services to recognise and respond to the needs of vulnerable customers.[6] For firms engaging customers via digital interfaces, the FCA suggests using free hand text boxes and data analysis (amongst other methods) to monitor for vulnerabilities and take appropriate action.

Comment

The FCA’s clarification as to the application of the vulnerable customer guidelines is welcome.  However, this may lead to confusion about the extent of the application of the guidance which may be difficult for front-line staff to apply in practice.  Firms may ultimately choose to apply vulnerable customer policies for all customer types in order to ensure best practice and fair customer treatment.

The FCA’s Spectrum of Vulnerability is sensible to avoid inflexible approaches by lenders and a “tick box” approach, but this could also cause confusion and make it difficult for firms to monitor customer outcomes.

It is clear that the FCA will continue to focus on firms’ approach to vulnerable customers and this will be compounded by the ongoing Covid-19 pandemic. Lenders should consider the FCA’s consultation paper carefully and be sure to provide any responses within the 30 September deadline. Firms will also need to consider how their processes and products and services comply with the draft FCA guidance on the fair treatment of vulnerable customers


[1] p.3 GC20/3 Guidance consultation and feedback statement; Guidance for firms on the fair treatment of vulnerable customers

[2] p.12 GC20/3 Guidance consultation and feedback statement; Guidance for firms on the fair treatment of vulnerable customers

[3] p.5 GC20/3 Guidance consultation and feedback statement; Guidance for firms on the fair treatment of vulnerable customers

[4] p.12 GC20/3 Guidance consultation and feedback statement; Guidance for firms on the fair treatment of vulnerable customers

[5] p.14 GC20/3 Guidance consultation and feedback statement; Guidance for firms on the fair treatment of vulnerable customers

[6] p.14 GC20/3 Guidance consultation and feedback statement; Guidance for firms on the fair treatment of vulnerable customers