ATEB Consulting’s Steve Bailey considers the FCA’s consultation on vulnerable clients, identifying who is a vulnerable client and how aspects such as Principles for Businessesand the TCF outcomes are relevant.
The FCA expects firms to treat customers fairly. Previous work by the regulator has shown that not all firms treat vulnerable consumers fairly and, as a result, those consumers are at risk of significant harm. Vulnerability is therefore a key priority for the FCA.
In its July 2018 paper, ‘Approach to Consumers’, the FCA set out their vision for a well-functioning market that works for consumers and committed to consulting further on guidance for firms on the treatment of vulnerable consumers.
A two-stage approach to this consultation is planned. The first stage is underway with GC19/3 requesting feedback on three specific areas by 4 October 2019:
1. Whether the guidance covers the right issues and would provide the right degree of clarity on what should be done to improve outcomes for vulnerable consumers;
2. How the guidance could affect firms’ costs and the extent of the benefit the changes would make for vulnerable consumers;
3. Whether the guidance is sufficient to ensure firms take appropriate action, or whether it would require additional policy interventions, such as additional rules.
The FCA plans to issue a response in Autumn/Winter 2019, following consideration of the feedback.
There appear to be no set timescales for the second stage.
Summary of GC19/3
Who is a Vulnerable Consumer?
The FCA defines a vulnerable consumer 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”
Vulnerability can be transient or short-term in some cases; for others it can be permanent or long-term. Some groups might be more vulnerable than others, for example, those under 24 or over 65, unemployed and those with no formal qualifications. There are also factors that act as drivers to actual or potential vulnerability:
- Health: Health conditions that affect the ability to carry out day to day tasks, for example, physical disability, severe long-term illness, hearing or visual impairment, poor mental health and low mental capacity or cognitive disabilities.
- Life events: Major life events such as bereavement or relationship breakdown, income shock, having caring responsibilities, or having a non-standard situation such as being an ex-offender or refugee.
- Resilience: Low ability to withstand financial or emotional shocks; examples include, low or erratic income, over indebtedness, low savings, low emotional resilience or lack of a support structure.
- Capability: Low knowledge of financial matters or low confidence in managing money which could also mean poor English language ability, poor or non-existent digital skills, learning impairments or poor literacy or numeracy skills.
Draft Guidance
Adviser firms are reminded that the following Principles for Businesses are relevant in relation to dealing with vulnerable customers:
- Principle 2 Skill, care and diligence
- Principle 3 Management and Control
- Principle 6 Customers’ interests
- Principle 7 Communications with clients
- Principle 9 Customers relationships of trust
In addition, the six TCF outcomes apply:
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