BSLS2024: Consumer Duty has made vulnerability about ‘characteristics’ rather than ‘binary’

Speaking at The British Specialist Lending Senate, senior policy adviser at the Association of Mortgage Intermediaries (AMI) Chloe Timperley (pictured) said: “The biggest thing I think [with Consumer Duty] is this shift from categorising the whole customer to either vulnerable or not vulnerable and instead identifying characteristics of vulnerability, and these may be temporary, these may be present in somebody who appears otherwise quite resilient.

“It’s not just a case of somebody who is vulnerable looks frail and helpless and needs hand-holding in every aspect of the advice process. I think, whereas, perhaps we’re coming up against the infrastructure issue here is that a lot of CRM systems do just have that binary, vulnerable or not vulnerable, which doesn’t really help you to be able to track the support needs of those individual customers,” she said.

Timperley added that “we do despair a little bit when you see firms going really into detail of all these different data points and trying to get an aggregate vulnerability score for each customer”.

“But then what do you actually do with that? How is that translating into support?” she noted.

Timperley said that it was “far better to focus your efforts on: does the customer need this in a different format?”

“Do they need to be called at certain times because they have anxiety and they need to kind of have special accommodations, or do they need to be taken through the process in a face-to-face setting?” she explained.

Timperley continued on to say that another “big part of vulnerability is not putting your foot in it”.

“Coming back to CRM systems, that system needs to be set up so that once a disclosure has been made, then that only needs to happen once and that can be shared discreetly and appropriately with those who might have an interaction with that customer so they don’t have to keep saying or reminding [that they are vulnerable].”

“We need the technology to be on point for this because we know that the FCA is not happy with the levels of embedding of existing guidance that they’ve seen in firms.”

“I think I would say, from a regulatory perspective, is to understand the shift that has taken place with Consumer Duty, in that supervisory work previously used to be very backward-looking and after the fact, and now it has moved to taking a much more data-led and proactive stance.”

Consumer Duty helped firms see ‘gaps in their process’

Timperley said that the implementation of Consumer Duty had presented some challenges for smaller firms with the “layering of regulatory initiatives, and the rate of new initiatives” coming out of the Financial Conduct Authority (FCA), it has been “incredibly difficult for them to just keep up with all of this”.

“What we’ve heard back is that for those firms that have taken time out of the day-to-day business, and they’ve sat down and mapped out their end-to-end consumer journey, whether that is their standard journey or the ones that are a bit more complex or at the fringes, it’s been helpful for them to see the things that customers don’t know that they don’t know.

“I think there’s a real pitfall of being an expert at something that you can forget what people on the other end are not aware of,” Timperley explained.

She continued that initially smaller firms saw it as a “task that’s got to be ticked off”, but “they enjoyed that process of mapping it all out, and it did help them see where there might be gaps in their process that they could fill”.

‘AMI is in the corner of brokers’

Timperley said that, last year, a lot of second charge firms were approached by the FCA for a data request.

“It got a lot of firms’ backs up because the questions they asked actually betrayed a lack of understanding of how the market works, how the remuneration structures work, the fact that proc fees are not going to be on a par with the mainstream market because of the smaller loan sizes,” she said.

Timperley said that the one thing it had been saying is to “engage with that process, because this is an opportunity to educate the FCA and to help them to gain that understanding”.

“Just because they’re knocking on your door doesn’t necessarily mean that they are coming to crack down on your firm. The worst thing you can do is not engage,” she added.

Timperley noted that there was a “openness from the regulator to feedback”.

“AMI is in the corner of brokers, so if we’re relating something the FCA told us, it may sound like we’re having a pop at the industry, but we’re not. We’re just messengers, and it’s because we care about firms’ interests, and we want to defend the sector to ensure that businesses can keep trading.”