Fair treatment of vulnerable clients – a compliance perspective
16 September 2019
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 Businesses and 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:
Firms are reminded that the following Principles for Businesses are relevant in relation to dealing with vulnerable customers:
In addition, the six TCF outcomes apply:
The FCA’s intention in proposing the guidance is to clarify what firms should do to ensure that vulnerable customers are treated fairly, and consistently across financial services sectors.
They want to see firms doing the right thing for vulnerable consumers and embedding this in their culture so that treating vulnerable consumers becomes the responsibility of all staff.
Firms will be expected to produce and regularly review management information, appropriate to the nature of its business.
Our view and recommended actions
For the moment, there are no specific new rules or procedures anticipated but that could change following feedback and there could be GDPR/Data Protection considerations when dealing with vulnerable consumers.
In the meantime, we suggest creating an awareness of the firm’s obligations to vulnerable consumers.
Compliance with the guidance could well require modification of some of the firm’s processes and procedures so that there are prompts for staff to easily identify and record a vulnerability.
As an example: a vulnerability could be picked up in conversation while making an appointment for a customer wishing to review her/his finances because of impending divorce. The adviser would consider whether the client will need more time to make decisions or would want to be accompanied by friend or family member at meetings.
As an example: an adviser may notice a client squinting to read information, they should check more seriously visually impaired. This client could be asked what would help … perhaps using a larger font in any correspondence.
Of course, not all vulnerable clients will necessitate a different to normal approach. What is important is that the firm considers it and records their view.
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