Vulnerable customers are defined as customers suffering with a health condition or illness affecting their ability to carry out daily tasks, victims of life events like bereavement or divorce, impaired resilience to withstand financial or emotional shocks or having low capability.
According to the regulator’s Financial Lives Survey, 50 per cent of UK adults display one or more characteristics of being potentially vulnerable.
The FCA said it wants to see doing the right thing for vulnerable consumers deeply embedded in firms’ culture.
It said: “Firms will need to think about what the guidance means for their business and customers, and how they are understanding and addressing the needs of vulnerable customers.”
Christopher Woolard, executive director of strategy and competition said: “Protecting vulnerable consumers is a key priority for the FCA and we want to see firms explicitly embedding the fair treatment of vulnerable consumers into their culture. Where we find that firms are not doing enough to ensure that consumers are treated fairly, we will take action.
“Businesses need to take particular care to ensure that vulnerable consumers are treated fairly as they may be more likely to experience harm.”
The FCA is asking for comments on this first stage of the consultation, GC19/3 by 4 October.
Responses can be emailed to ApproachtoConsumers@fca.org.uk or posted to Strategy Team Consumer and Retail Policy Strategy & Competition Division Financial Conduct Authority 12 Endeavour Square London E20 1JN.
The key issues
Some of the consequences of vulnerability highlighted by research include heightened stress levels, limited ability to manage or process information due to competing pressures, such as illness or medical treatment and a lack of perspective, especially when experiencing something for the first time.
Others outlined include not understanding the broader implications of their actions, an inability to make comparisons or see the bigger picture and greater risk-taking or carelessness at moments of stress.
The FCA said: “Vulnerable consumers may be significantly less able to represent their own interests. They may have non-standard needs, and may be more prone to certain behavioural biases that negatively impact their decision making.”
As an example, it added vulnerable consumers may be more likely to suffer from behavioural patterns such as a ‘scarcity mindset’, which can reduce mental bandwidth and lead consumers to focus on certain factors at the expense of others.
It added this can mean vulnerable consumers, especially those who may not be financially resilient, are more likely to make mistakes in their decisions about buying and using financial services.
What next for firms?
The challenges firms face in tackling vulnerability include the transient nature of some vulnerability and the unwillingness of customers to disclose their own problems, especially in an online environment.
Firms also said labeling customers as vulnerable or asking questions deemed to be personal or irrelevant risks upsetting or offending and that concerns about General Data Protection Regulations (GDPR) and data protection may also be barriers to understanding and dealing with the problem better.
Eric Leenders, managing director of personal finance, UK Finance, said: “This will build on the significant programme of work being undertaken by the industry in this area, including implementing the recommendations of the Financial Services Vulnerability Taskforce, improving the way family members or carers can help manage bank accounts and introducing a new code of practice to support victims of financial abuse.”
StepChange head of policy Peter Tutton said: “This FCA guidance is vital step to market that works well for all people. We look forward to the focus it should produce on ensuring products and services can accounts of the needs of vulnerable consumers by design. So we welcome the FCA’s new guidance, and urge the regulator to implement it as soon as practical and to monitor it closely.”