The FCA has published a consultation on proposed non-Handbook guidance for firms on the fair treatment of vulnerable customers. The FCA reiterates that vulnerability is one of its key priorities and makes it clear that the draft guidance sets out its view of what its Principles for Businesses require of financial services firms to ensure the fair treatment of vulnerable consumers. Firms with existing policies and processes for fair treatment of vulnerable consumers should be looking to review them to make sure they meet their obligations under the Principles and plug any gaps.
What's the rationale?
According to the FCA's 2017 Financial Lives Survey, half of UK adults (25.6 million people) display one or more characteristics of potential vulnerability. The FCA wants to see 'doing the right thing for vulnerable consumers deeply embedded in the culture of firms'.
Whilst recognising that many firms have made significant progress in how they treat vulnerable consumers, the FCA believes there is room for improvement, with some firms' shortfalls leading to consumer harm. The draft guidance therefore focuses on consistency of outcomes for vulnerable retail consumers across financial services sectors and when compared with outcomes for other retail consumers.
What is vulnerability?
The FCA cross-refers to its Approach to Consumers to define a vulnerable consumer in an intentionally broad manner 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' (as presented in its Occasional Paper 8 on Consumer Vulnerability). The FCA points out that consumers' circumstances are constantly changing and explains that vulnerability for these purposes can be both 'actual' and 'potential'.
Achieving the right result via flexibility, not prescriptive requirements
The FCA makes the point that the draft guidance does not aim to provide a checklist of required actions. Instead it provides options for ways in which firms can comply with the Principles so that they can adapt to the constantly changing landscape for both consumers and firms. This includes examples of good practice as well as case studies presenting both good and poor practice, all developed from the FCA's stakeholder engagement on vulnerability issues.
Which Principles for Businesses are particularly relevant?
The draft guidance sets out the five Principles which it identifies as underpinning the fair treatment of vulnerable customers, namely:
- Principle 2: Skill, care and diligence;
- Principle 3: Management and control;
- Principle 6: Customers' interests (TCF);
- Principle 7: Communications with clients;
- Principle 9: Customers: relationships of trust.
Principle 6 is singled out as being key to underpinning the need for firms to take particular care in the treatment of vulnerable customers and the FCA has re-iterated its six target outcomes for firms to achieve in the fair treatment of customers.
From understanding and upskilling to practical action
The draft guidance underlines the importance of understanding vulnerable consumers' needs in the context of a particular target market and customer base. It then sets out how firms should ensure their staff have the right skills to deal with vulnerable consumers' needs. The draft guidance goes on to lay out what firms should be doing to treat vulnerable consumers fairly at different stages in the customer journey.
There is an emphasis on the need for firms to translate their understanding of vulnerable consumers' needs into practical action in terms of product and service design, customer service and communication. Firms also need to incorporate a continuous improvement process to monitor outcomes and implement any necessary updates.
On-going FCA monitoring
Once finalised, the guidance will be used by the FCA - taking a 'proportionate approach' - to monitor firms' treatment of vulnerable consumers and to hold them to account if they breach the Principles. It reminds firms that, while the guidance is not itself legally binding, it should be used in a way that's compatible with other existing relevant Handbook and other legal requirements relating to how firms treat vulnerable consumers (for example under the Equality Act 2010).
What's next?
The guidance will be consulted on in two stages. In the first stage, the FCA is seeking feedback on three particular areas:
- whether the draft guidance covers the right issues and would provide firms with the right degree of clarity on what they should do to improve the outcomes for vulnerable consumers;
- how the guidance could affect firms' costs and the extent of benefits to vulnerable consumers from changes triggered by the guidance;
- stakeholders' views on whether the guidance, as part of the FCA's regulatory framework, is sufficient to ensure firms take appropriate action to treat vulnerable consumers fairly, or whether additional policy interventions, such as additional rules, might be required.
In the light of the feedback to the first stage, the FCA plans to consult in a second stage on revised draft guidance, with an accompanying cost-benefit analysis. If the FCA considers further interventions are necessary, it would also consult on those in the second stage.
The FCA is asking for comments on the first stage of the consultation by 4 October 2019. It will consider the consultation feedback and plans to issue a response in autumn/winter 2019.
Other related initiatives – watch this space
The FCA points out that it also has several other on-going projects and initiatives that are relevant to vulnerable consumers, including its workstreams on a duty of care and on fair pricing in financial services. It will continue to progress these as it develops the guidance, so there is most definitely more on vulnerability to follow...
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