On 23 February 2021, the Financial Conduct Authority (FCA) published its guidance for firms on the fair treatment of vulnerable customers. Protecting vulnerable customers is a key focus for the FCA and it has taken on an added significance in the context of the ongoing Covid-19 pandemic. Walker Morris financial services expert Jeanette Burgess summarises the guidance and what it means for firms.
Which firms should apply the guidance?
The FCA's Principles for Businesses require firms to treat customers fairly. This new guidance sets out what firms should do to comply with their obligations under the Principles and ensure they treat vulnerable customers fairly. It applies to all firms where the Principles apply, regardless of sector. It applies to the supply of products or services to retail customers who are 'natural persons' (individuals but also some business/charity customers), even if a firm does not have a direct client relationship with the customer (for example, in distribution chains).
The FCA explains that the guidance will apply to firms in different ways because of the significant differences across and within sectors. Firms will need to use their judgement to decide precisely what the guidance means for 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 customers.
Who are vulnerable customers?
A vulnerable customer is defined as someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.
According to the FCA's latest Financial Lives Survey, there are now 27.7 million adults in the UK with characteristics of vulnerability such as poor health, low financial resilience or recent negative life events.
Characteristics of vulnerability may result in customers having additional or different needs and may limit their ability or willingness to make decisions and choices or to represent their own interests. These customers may be at greater risk of harm, particularly if things go wrong.
Why has the FCA published this guidance?
As the FCA explains on its website, it wants to drive improvements in the way that firms treat vulnerable customers and bring about a practical shift in firms' actions and behaviour. It wants vulnerable customers to experience outcomes as good as other customers and to receive consistently fair treatment.
The FCA expects firms to provide their customers with a level of care that is appropriate given the characteristics of the customers themselves. The level of care that is appropriate for vulnerable customers may be different from that for others and firms should take particular care to ensure they are treated fairly. If firms do not understand the characteristics of vulnerability of their target market and main customer base, and so fail to ensure staff, products and services meet these needs, customers may suffer poor or inconsistent outcomes, or increased risk of harm.
What does it mean for firms?
To achieve good outcomes for vulnerable customers, firms should:
- Understand the needs of their target market/customer base: This means understanding the nature and scale of vulnerability characteristics that exist in the firm's target market/customer base (using, for example, existing internal and external research and data and published information) and the impact of vulnerability on those customers' needs. Think about what types of harm or disadvantage customers may be vulnerable to, how this might affect customer experience and outcomes and how the firm's actions can increase or reduce the risk of harm. Consider creating an internal vulnerability policy that includes information on likely vulnerabilities and needs.
- Ensure staff have the right skills and capability to recognise and respond to vulnerable customers' needs: This means embedding the fair treatment of vulnerable customers across the workforce. Ensure that all relevant staff understand how their role affects fair treatment of vulnerable customers. The guidance gives some examples of firms finding different ways of working with consumer organisations, such as dementia charities, to increase staff understanding of vulnerable customers' needs. Ensure that frontline staff have the required skills/capability to recognise and respond to a range of vulnerability characteristics and offer them practical and emotional support. In one example, a firm proactively launched a low-cost training tool to educate financial advisers on interacting with older customers. Staff need to be able to recognise when information about a customer's needs is relevant to future interactions and know how to record it. Knowing how to record and access information about customers will enable firms to meet their needs promptly, consistently and fairly.
- Respond to customer needs throughout product design, flexible customer service provision and communications: This is about firms turning their understanding of vulnerable customers into practical action to meet their needs. For example, consider the potential positive and negative impacts of a product or service on vulnerable customers and design the product or service to avoid potential harmful impacts. The guidance gives the example of several banks that have introduced optional blocks on payments to gambling firms to help customers who would benefit from greater control of their spending on gambling. Set up systems and processes in ways that support and enable vulnerable customers to disclose their needs, deliver customer service that responds flexibly, make customers aware of available support and put in place systems and processes that support the delivery of good customer service. Ensure all communications and information about products and services are presented in ways that are understandable and consider how to communicate with vulnerable customers, taking account of their needs. The guidance gives the poor practice example of a customer who was unable to read large print and did not know braille. He wanted his bank to communicate by email as he could turn emails into speech, but the bank did not offer this option. It continued to send the customer communications on paper.
- 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: This means implementing appropriate processes to evaluate where vulnerable customers' needs have not been met and producing and regularly reviewing management information, appropriate to the nature of the business, on the outcomes being delivered for vulnerable customers.
Culture is another key focus for the FCA. It wants to see the fair treatment of vulnerable customers embedded as part of a healthy culture throughout firms, not just on the frontline but also in areas such as product development. It says that firms' senior leaders should create and maintain a culture that enables and supports staff to take responsibility for reducing the potential for harm to vulnerable customers. They should ensure that firms embed the fair treatment of vulnerable customers in their policies and processes throughout the whole customer journey.
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.
Steps to take now
Chapters 2 to 5 of the guidance set out more detail, including further case studies of good, mixed and poor practice and examples of what firms can do practically to implement the guidance. Firms should consider the case studies and practical examples and how they apply to their business. This will help to identify any current gaps and potential areas for improvement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.