The Financial Conduct Authority has issued potential guidelines and a consultation on one of its highest priorities – the recognition and fair treatment of so-called vulnerable customers.
The regulator is requesting industry feedback to some suggested guidelines and it has split the consultations into sections on understanding the needs of vulnerable customers, skills and capability of staff, product and service design, customer services, communications, and monitoring and evaluation.
The FCA believes having the right culture is paramount to fair treatment and so it is unsurprising that strategy and competition director regulator Christopher Woolard, said he wants to see firms “explicitly embedding the fair treatment of vulnerable consumers into their culture.” It was added that firms’ response to vulnerable clients can vary and those who are not meeting the standards must raise their game. He continued:
“Where we find that firms are not doing enough to ensure that consumers are treated fairly, we will take action. Firms need to take particular care to ensure that vulnerable consumers are treated fairly as they may be more likely to experience harm. The guidance should drive improvements across the industry, improving outcomes for millions.”
How should firms spot these customers?
There is no one size fits all approach, because vulnerability can come in many guises. The FCA states a vulnerable customer is someone who “due to their personal circumstances is especially susceptible to detriment” and that its definition was “intentionally broad”.
So, there are a wide range of circumstances and conditions that contribute to vulnerability and in some cases these will be permanent, while in others they will not. These could include old age and dementia, physical and mental health conditions, financial difficulties, those who are struggling to cope with a bereavement or relationship breakdown or simply a lack of knowledge about financial products and how to choose them wisely. For example, debt charity StepChange has said that 36% of its clients in 2018 had “additional vulnerabilities” and has highlighted the connection between vulnerability and
Further providers are being reminded that people with particular needs must come before profits and a case in point are those who may be less mindful of the need to shop around each year when buying home and motor insurance. The FCA is well aware that some insurers have hiked up prices when a policy comes around for renewal, having tempted the customer in with a cheap rate. Instead, the FCA is critical of those who fail to reward loyalty and who simply hope to earn through customers’ lack of awareness. And in the case of travel insurance, it is proposing a new ‘signposting’ rule where those with pre-existing medical conditions are given great assistance through the creating of a directory of providers that specialize in this area.
Overall, the regulator is stressing that outcomes should be as good for those who are vulnerable and often in difficult circumstances, as for those who are not. It accepts that some providers have made efforts in this area but does not want it to be a game of chance.
It is certainly well worth firms reading this 41-page piece of guidance as the vulnerable customers topic is not going to disappear. Now is the time to analyze current approaches and to see if these can be improved. Financial services encompass many different business lines and there is often small print and complexity, which means firms need to see how they can simplify if necessary, avoid mis-selling and realize that customers are far from homogenous.
The FCA has also made it clear it wants dialogue with stakeholders and for them to provide feedback to the consultation, including whether there should be additional rules. Following this, it will consult on revised guidance – comments to this first stage of the consultation should be made by 4 October 2019.