This week, the FCA shared the approach it is taking to ensure firms treat vulnerable customers fairly.
Publishing details of a speech given at the TISA Vulnerability Conference last month, the regulator outlined its forthcoming new guidance on vulnerability. The guidance aims to give businesses greater clarity on what they are expected to do to ensure that vulnerable consumers are ‘treated fairly and consistently across financial services sectors’.
Here, we look at the new guidance and what the FCA’s approach means for firms trying to deliver fair treatment for vulnerable customers.
New guidance on vulnerable customers
In July, the FCA launched a consultation on new guidance for the fair treatment of vulnerable customers. This has long been a focus for the regulator; we’ve looked previously at ways that firms can meet the FCA’s expectations on vulnerable clients. The objective of better outcomes for the vulnerable also underpins a lot of the regulator’s other work – for instance, in the consumer credit industry.
In the recent speech, Nisha Arora, the FCA’s Director of Consumer and Retail Policy stated that the aim of the guidance is to ‘change the discourse from whether the right boxes have been ticked to achieve compliance, to firms stepping back to ask what their vulnerable customer’s needs are’. The guidance, she said, should become ‘embedded in firms’ culture, processes and practices’.
The consultation into the guidance closed in October last year, and the guidance is now being refined to reflect the feedback received. In her speech, Arora stressed the need for each firm to consider its own approach ‘through the lens of their own business’. A one-size approach won’t work here, and firms need to decide on their own best way to respond to vulnerability – hence the decision to issue ‘guidance’ rather than regulation.
Four key areas for firms to focus on
The draft guidance focuses on four key areas that firms should consider in their own approaches to vulnerability:
- understanding vulnerability
- the skills and capability of staff
- taking practical action (through product and service design, communications, customer service)
- monitoring and evaluation
In this context, this means not identifying the vulnerabilities of every customer, but developing a general understanding of the types of vulnerability that customers might display. Different sectors may see different reasons for vulnerability – saving and investment firms, for instance, may have more older customers, while some causes of vulnerability, like certain life events, will appear across sectors.
Skills and capabilities of staff
Staff can play a vital role in delivering good outcomes for vulnerable customers. They need to be able to recognise potential vulnerability in order to be able to meet the customer’s needs.
Often, only frontline staff are considered when talking about vulnerability. However, Arora noted that product designers, managers and senior staff all have a role to play in ensuring products are appropriate, staff empowered and a culture of support embedded and championed across the organisation.
Product and service design
As mentioned above, the design of products and services can have a positive or negative impact on vulnerable customers. The needs of vulnerable customers should be considered at every stage of the design process, with existing products tailored where necessary to ensure they accommodate vulnerable potential users.
Arora points out in the speech that ‘Vulnerable customers are more likely to have particular service needs, for example they may need more time to understand information and make decisions’.
Firms should consider the way their usual approach to service impacts on vulnerable customers. Customer service staff should be enabled and encouraged to depart from automated processes, scripts or approaches if they are dealing with a customer they suspect maybe vulnerable.
Very pertinent to Compliance teams, Arora also addressed communications for vulnerable customers.
Financial services communications can be a ‘significant barrier’ for vulnerable consumers with additional or different needs.
The regulator wants firms to ‘consider how good and appropriate communications can help vulnerable consumers. Communications should be clear and easy to understand.’
Particularly, Arora pointed out that for people working in the financial sector, it can be ‘easy to forget that what we think are basic terms can be quite complicated for customers’.
As a result, firms should consider what communication channels they should use and what tailored communications they can provide. Offering more communications options – where this is proportionate – and making information more accessible will enable vulnerable customers to both communicate their needs and have them met.
Firms should bear in mind that digital communications can be ‘both a benefit and a barrier to vulnerable customers’ and produce communications that take account of vulnerability.
The FCA will consult on its revised guidance in the spring, and aims to finalise it later in 2020. It continues to focus on vulnerability, and is keen to see the new guidance ‘embedded in firms’ culture, processes and practices’. It will be monitoring firms’ responses and, where necessary, using its supervision and enforcement tools to ensure that vulnerable customers are being treated fairly.
Vulnerability clearly continues to be a major priority for the FCA. If you would like to read more about how to treat all your customers – not just the vulnerable – fairly, you can download a copy of our TCF FAQs. It covers frequently asked questions looking at:
- What TCF is
- Expectations of firms
- Evidencing TCF (management information)
- Requirements for providers and distributors
You can download the FAQs here.
Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.