The Financial Conduct Authority (FCA) will publish its findings before the end of the year, and this follows a commitment made by the regulator in 2021.
At the time, the FCA said the fair treatment of vulnerable customers should be embedded in a firm’s culture, adding that the needs of such customers must be understood. It also expected employees to have the right skills to recognise the needs of vulnerable customers.
The regulator said this year’s review would look at how firms understand consumer needs, the skills and capabilities of staff, product and service design, communications and customer service and whether customers are being treated fairly.
The outcomes vulnerable customers receive will also be assessed to determine if they are as good as the outcomes received by other consumers.
This review will be done using consumer research and information gathered from firms and consumer representatives.
The FCA said this would enable it to understand if customers most susceptible to harm were receiving good outcomes.
Vulnerability review ‘no surprise’
Andrew Gething, managing director of MorganAsh, said: “It is no surprise that the FCA has announced its plans for a review of how firms are managing customer vulnerability. The vulnerability guidance FG21/1 came in three years ago – although Consumer Duty FG22/5 gave it great impetus in July 2023.
“A simple check firms can undertake themselves is the number of vulnerable customers they have recorded.”
He added: “Many firms are still reporting the number of vulnerable customers in the single figures – so they are also falling well short. Some common errors include only being reactive to consumers volunteering information when the consumer contacts the firm, thus only assessing a subset of customers – firms need to be proactive and attempt to assess all customers. Also, relying on consumers to volunteer information, when they need to be asking questions of the consumers, or obtaining the data from elsewhere – and only assessing financial vulnerability, while ignoring health and lifestyle issues, as this is the only data that can be provided by data providers. Plus, relying on agent/adviser assessments, which generally underreport, and thinking that if they have overcome the vulnerability, then they don’t need to record it. Finally, only recording when they make an adjustment and ignoring the milder vulnerabilities that don’t have an impact on the immediate process.
“As part of Consumer Duty, firms need to report in July on outcomes and the comparison of the vulnerable cohorts (bereaved, divorced, cancer, debt, etc.) compared to the resilient. It is becoming obvious that few firms can actually do this, as they don’t have the data. As a result, firms should look to start the process so they can show evidence and plans to comply. Alongside good-quality data, firms must have necessary technology to provide a proactive and objective way to assess consumer vulnerability. With the right processes in place, compliance can start to feel like a competitive advantage, providing firms with a greater level of intelligence, which will strengthen client relationships and deliver a level of service that is far better-suited to their needs.”
Gething said: “A wider challenge is the lack of monitoring over the lifetime of the product – which often requires some form of cooperation between manufacturer and broker. Some have questioned whether the responsibility falls on the intermediary or the manufacturer. As far as Consumer Duty is concerned, it doesn’t matter who undertakes the monitoring, just so long as it happens.”
Jonathan Barrett, CEO of Comentis, added: “The recent FCA review regarding how firms treat their customers in vulnerable circumstances is undoubtedly the clearest message we have seen so far that the FCA is taking customer vulnerability seriously.
This recent scrutiny from the FCA should send a clear message that firms will need to get on the front foot if they haven’t already. Consumer Duty sets the expectation that vulnerable customers must be identified, and that their outcomes should be no less favourable than non-vulnerable customers.
The best way to ensure this is by a systematic process for screening clients and appropriate accommodations for the needs of those at risk. By combining clinical expertise with hard data, these kinds of solutions can remove bias and subjectivity from the process, ensure consistency across a whole client base and reassure firms that their systems will adequately meet the scrutiny of regulatory requirements.”
