FCA Guidance on Vulnerable Customers
FCA has now issued GC19/03; draft guidance consultation on vulnerable customers. GC19/03 will be subject to a two-stage consultation process the first of which finishes on 4th October.
The draft guidance is relevant to all regulated firms dealing with retail customers. Retail customers are those who are acting outside of their trade, business or profession.
Whilst GC19/03 doesn’t bring anything new to existing FCA Principles and Rules on vulnerable customers, it does act by way of more formally setting expectations. FCA ‘guidance’ is not obligatory, however firms who are found to be causing customer detriment will be challenged more vigorously if they have not taken direction.
Vulnerable customers remains a high priority area for FCA. A recent survey found that 50% of UK adults display one or more characteristics of being potentially vulnerable. FCA defines a vulnerable customer 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”. Vulnerable customers are at greater risk of harm and the harm is likely to have a greater impact on them.
FCA identify 4 key drivers of vulnerability:
- health conditions or illnesses that affect the ability to carry out day to day tasks
- major life events such as bereavement or relationship breakdown
- low resilience to withstand financial or emotional shocks
- low knowledge of financial matters or low capability in managing money
The most likely groups to be vulnerable are the over 65’s, those under 24, the unemployed and those with no qualifications. Half of adults in problem debt are considered to have mental health issues and people with problem debts are twice as likely to develop depression.
The draft guidance is broken into 5 sections. The following is a brief summary of each. At the end of each section FCA gives examples of how firms might comply with the guidance in that section:
Firms should integrate an understanding of the needs of vulnerable customers in how they manage their business. To meet the requirements under Principle 3, this means ensuring the business has the necessary knowledge and skills to treat vulnerable customers fairly and has adequate control systems in place to ensure the firm is mitigating the risk of harm to vulnerable customers.
Firms should develop an understanding of the needs of vulnerable customers and translate this into practical action in a proportionate way and ensure staff have the necessary skills and capability to meet the needs of vulnerable consumers. Furthermore, this understanding should be embedded in product, service and process design and communications. Firms should be continuously monitoring and learning to ensure they are striving towards meeting the needs of vulnerable customers.
2. UNDERSTANDING THE NEEDS OF VULNERABLE CUSTOMERS
The needs of vulnerable customers are likely to vary and often require additional measures to ensure good outcomes. If firms do not understand the potential needs of the vulnerable customers in their target market or customer base, it may result in gaps in the provision of suitable services and products.
- Firms should understand the nature and scale of drivers of vulnerability present in their target market and customer base.
- Firms should understand the impact of vulnerabilities on the needs of consumers in their target market and customer base.
- Firms should consider how vulnerabilities could affect the customer experience and customer outcomes.
Firms should understand whether specific vulnerabilities are more prevalent in their target markets, or if their customers have a higher propensity for certain drivers of vulnerability. Firms should identify potential risks of harm arising from vulnerabilities in their target market and customer base.
3. SKILLS AND CAPABILITY OF STAFF
If staff do not have the skills and capability to probe customer circumstances or determine what solutions may be appropriate for a customer the staff will not know what action to take to adapt to the customer’s needs, and this can result in a worsening outcome for the vulnerable customer.
Firms should make sure that all staff, in particular those who operate at the frontline, have the appropriate skills and capability to treat vulnerable customers fairly. Firms should ensure that frontline staff have the skills and capability to take reasonable steps to actively seek information about customers’ vulnerabilities.
4. PRODUCT AND SERVICE DESIGN
Where firms design products and services that don’t consider the needs of vulnerable customers, there is a risk that vulnerable customers can suffer harm as their needs may not be met from the start.
Firms should consider the positive or negative impacts of a product or service on vulnerable customers, including:
- features of products or services that deliberately or inadvertently exploit customers in vulnerable circumstances.
- features of products and services designed specifically to deliver positive outcomes for vulnerable customers.
- whether the information needs of vulnerable customers are being met so that these customers understand the purpose and risks of the product.
- Firms should consider the needs of vulnerable customers at all stages of product and service design: idea generation, development, testing, launch, review
Firms should deliver good customer service that takes a flexible approach to the individual needs and circumstances of vulnerable customers and provide specialist services where appropriate. They should put processes in place that enable staff to continually deliver customer service that is effective and appropriate to the needs of their customers.
Firms should take steps to ensure vulnerable customers are not disadvantaged in understanding products and services:
- Communications should be clear and easy to understand for vulnerable customers.
- Post-contractual information should be provided to vulnerable customers in a way that they will understand.
- Any changes to the terms or features of a product should be communicated in a way that vulnerable customers will understand.
- Firms should proactively check that vulnerable customers understand communications at the point of sale.
Firms should take into account vulnerable customers’ information needs:
- Communications should be tailored where proportionate to do so, to meet the specific needs of vulnerable customers.
- Firms should use multiple channels to ensure, where appropriate, vulnerable customers have a choice.
- Customers should be made aware what different communication channels are available.
5. MONITORING AND EVALUATION
Firms should regularly monitor the extent to which they are doing what they should under the Principles in terms of treating vulnerable consumers fairly. This means firms should monitor their understanding of vulnerable consumers is embedded across their business and monitor how their actions affect the outcomes vulnerable consumers are experiencing. Firms should use the results of this monitoring to continually learn and develop their understanding of the needs of vulnerable consumers. They should also understand what activities and processes work well, and what needs to be adapted to improve the outcomes for vulnerable consumers. Firms should continue to strive towards ensuring they are treating their vulnerable customers fairly.
Whilst this is draft guidance at present, as it is not based on any new Principles or Rules, essentially it sets FCA’s expectations of how firms should already be treating vulnerable customers and all firms should be reviewing their policies, processes, training and monitoring in light of this guidance.
If you require any support around this guidance and your treatment of vulnerable customers – please do get in touch.
You can find the full draft Guidance here: