FCA finalises vulnerable customer policy

23 February 2021

The Financial Conduct Authority (FCA) has said the fair treatment of vulnerable customers should be embedded in the culture of financial services firms, from the way frontline staff deal with customers through to product development.

In its finalised guidance published on Tuesday (FG21/1), the watchdog said firms’ senior leaders should create and maintain a culture that enables and support staff to take responsibility for reducing the potential for harm to vulnerable customers.

Commenting on the report, Jane Goodland, corporate affairs director, Quilter, said: “Vulnerability can be deeply personal and an issue customers are unlikely to shout about or may be unwilling to discuss, so a crucial challenge for all companies is to identify customers on the spectrum of risk. This is easier said than done in a world with less human-to-human contact, even before the pandemic.

“All employees of financial services firms have the skills and capability to recognise and deal with customers who display signs of vulnerability, so the FCA’s guidance on embedding fair treatment of vulnerable customers across businesses is a big step in the right direction.”

The FCA said there had been some good examples of where commitment has come from the top and where there is a culture of feedback and learning from the frontline. While it stopped short of providing a checklist of required actions, with the FCA stating that firms will need to use their own judgement according to the characteristics of their customer base and target market, it has published case studies of both good and bad practice.

Stephen Lowe, group communications director, Just Group, said: “The coronavirus pandemic has shown how quickly customers’ circumstances can change and how important it is that firms have systems in place to help people grappling with those changes. Firms have a great deal of flexibility around how they comply with their responsibilities and it is useful to see examples of firms that are getting it right and to understand where the regulator thinks they are falling short.

“Advisers are definitely keen to learn more so they can interact with vulnerable clients sensitively and appropriately. Proof of their appetite is shown by the fact that over 6,000 advisers have used our online vulnerability training tool, which we recently updated to incorporate the latest guidelines and information on the Covid-19 pandemic.”

According to the FCA, firms should think about vulnerability as a spectrum of risk, with all customers at risk of becoming vulnerable. This could include health conditions; life events such as bereavement, job loss or relationship breakdown; low resilience to financial shocks; or low knowledge of financial matters. It said these characteristics are likely to be “complex and overlapping.”

FCA research

Recent research from the FCA showed that in February 2020 46% of UK adults had characteristics of vulnerability and this had increased to 53% in October, highlighting the impact of the pandemic on people’s personal circumstances.

Andrew Tully, technical director, Canada Life, said: “Covid-19 has exacerbated the challenges for many vulnerable people, while many others have found themselves newly vulnerable due to the pandemic.

“A key strand of the FCA’s new rules is the introduction of a ‘spectrum of risk’. This avoids the stark categorising of people as vulnerable, potentially vulnerable or not vulnerable, recognising that most people could be vulnerable at some point through their life and their position will likely vary over time.”

Tom Selby, senior analyst at AJ Bell, echoed the sentiment: “While we now have a roadmap out of lockdown, millions will face job and income insecurity in 2021 and beyond. 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. 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.”

Scams threat

The FCA said the issue of scams and financial abuse was also a key factor to consider, with vulnerable consumers more likely to fall victim to scams. Financial fraud against UK customers increased by two thirds in the first half of 2020 (66%) compared with the last six months of 2019, with investment scams, in which criminals target customers looking for a better return on their savings, rising sharply.

Tully warned that the pandemic has provided the “perfect camouflage” for scammers to prey on the elderly, vulnerable and financially stretched.

He explained: “The impact of scams is not just a financial hit, the hidden costs to mental health can be severe as a victim’s ability to trust is shattered overnight. Despite the public message campaigns and the ban on cold-calling, the scammers are either simply ignoring the law or looking to sophisticated campaigns over social media in order to con people out of their savings. We all need to be on our guard and also look out for other family members. The rapid rise of scams just shows we all need to be vigilant, scam aware and follow the simple rule of thumb – if it appears too good to be true, it inevitably is.”

Goodland added: “The pandemic has been a boon for scammers, and the link between vulnerability and online scams is clear, so it’s high time the government took action by making it much harder for scammers to take advantage of people online.

But the missing piece of the puzzle is financial capability and financial education. Navigating your financial choices whilst displaying a characteristic of vulnerability is at times feel like an insurmountable challenge, and financial education is vital to give people the tools they need to navigate their money choices.”

Professional Paraplanner