FCA: Firms must understand and act to help financially vulnerable

Sophie King reports

The Financial Conduct Authority (FCA) has outlined how firms should better understand vulnerable customers and how businesses must act to improve outcomes for those clients.

The guidance, published on Tuesday (23 February), aimed to drive improvements in the way firms treat vulnerable customers.

It found that 27.7 million adults in the UK now have characteristics of vulnerability. This includes poor health, experiencing negative life events, low financial resilience or low capability.

Firms should understand what harms their customers are likely to be vulnerable to and ensure that customers in vulnerable circumstances can receive the same fair treatment and outcomes as other clients.

This needed to happen through the whole customer journey from product design through to customer engagement and communications, the watchdog said.

Understand vulnerable clients

In 2020, the regulator conducted a Financial Lives 2020 survey, which considered how coronavirus had impacted customers’ lives. It found that in February last year, 46% of adults had characteristics of vulnerability and by October, this had increased to 53%.

One way to understand vulnerable clients, the FCA said, is for firms to ask themselves what type of harm or disadvantage their customers may be vulnerable to and how this might affect the consumer experience.

The FCA suggested firms use market research to inform a good understanding of the risks of harm for vulnerable clients, or they could create an internal vulnerability policy that includes information on the likely vulnerabilities and needs in the firm’s target market.

Elsewhere, the financial watchdog said it is important that firms recognise the role staff play in meeting the needs of vulnerable customers. It said all staff can influence outcomes for vulnerable customers and so firms should ensure they all undertake relevant training.

FCA director of consumer & retail policy Nisha Arora said: “Protecting vulnerable consumers remains a key focus for us and given the impact of the coronavirus pandemic, it is more important than ever that firms get this right.

“While some firms have made significant progress, we want to see all firms across sectors taking steps to understand and respond to the needs of their customers, particularly those who are most vulnerable to harm.”

AJ Bell senior analyst Tom Selby said given the devastating impact coronavirus and the national lockdown has had on people’s lives it was “no surprise the number of vulnerable or potentially vulnerable people in the UK has surged”.

He added: “Given this backdrop, it is positive to see the FCA re-emphasising the vital role financial services firms can play in identifying people who may be vulnerable today or at risk of being vulnerable in the future.

“Vulnerability, by its nature, can be transient and difficult to spot, so ensuring fair treatment of vulnerable and potentially vulnerable customers is at the heart of each firm’s culture is the right approach.”

Turn it into action

Once firms have a greater understanding of their vulnerable customers and their needs, the FCA said they should then turn that knowledge into action.

For example, where firms design products and services that do not take into account the needs of vulnerable consumers, there is a risk they could suffer harm. Therefore, businesses should design products and services that meet evolving needs while avoiding inflexibility that could result in harmful impacts.

The FCA added firms should also take vulnerable customers into account at all stages of the product and service design process. They should build features into products that meet these needs and also consider whether any products might have features that could cause harm to these particular clients.

Finally, the regulator said all firms should periodically review their products to check whether they still meet the needs of vulnerable clients in their target market. Then, when altering said product, they should seek to understand if and how this will affect vulnerable groups.  

Customer service

The watchdog also pointed to customer service in its guidance, stating vulnerable clients would need different levels of service.

It said if firms do not ensure their customer service provision meets the needs of these clients they could exacerbate the risk of harm from being vulnerable.

One suggestion made by the FCA would be for firms to set up systems and processes in ways that support and enable vulnerable consumers to disclose their needs. It also said they should ensure they are delivering appropriate customer service that response flexibly to the needs of vulnerable consumers.

In addition, companies should tell consumers about the support available to them, ensuring they understand what firms have to offer.

The FCA’s Arora continued: “We also remind customers to tell your providers if you have specific needs – whether that’s due to ill health making it difficult to access a service, or a recent emotional or financial shock that is impacting your finances. Doing this will help firms support you.”

Support decision-making

Businesses should also support decision-making and third-party representation. Some consumers, due to low capability or reduce cognitive ability, may struggle to safeguard their own interests. Other consumers may have temporarily impaired capacity or decision-making ability. For example, fluctuating mental health conditions or addictions can lead to harmful or reckless financial behaviour. These consumers can be more at risk from buying inappropriate products, fraud or financial abuse.

Selby added: “Historically there has been a common misconception that vulnerability is just about older people or those suffering from diagnosed illnesses. The reality is every single person will likely, at some stage in their lives, be vulnerable.

“Attention on this important topic is long overdue and all involved in delivering financial services have a huge role to play in ensuring vulnerable and potentially vulnerable customers are identified and protected as much as possible.”

‘FCA is crystal clear’

Personal Finance Society chief executive Keith Richards said: “The FCA is crystal clear in their expectation that firms need to be able to demonstrate how their business model, the actions they have taken and their culture ensure the fair treatment of all customers, including clients in vulnerable circumstances.

“The last year has been difficult for everyone, but the recent FCA Financial Lives research sets out the scale of impact Covid-19 has had on our lives, with 27.7 million people now showing characteristics of vulnerability.

“It is important that firms don’t just develop a culture of feedback and learning from their own frontlines but unite as a profession to share good practice with their peers, which was why we launched the Financial Vulnerability Taskforce.

“We look forward to continuing our work with the FCA in this space.”