The Financial Conduct Authority (FCA) has rolled out a consultation about the proposed guidance for firms on the fair treatment of vulnerable customers.
It aims to ensure “consistency of outcomes”, regardless of the sector in which a firm operates.
The guidance will look to prevent issues such as financial exclusion and scams, which vulnerable consumers may be more likely to experience, according to FCA’s 2017 Financial Lives Survey.
The consultation will assess:
- how to meet the needs of vulnerable consumers,
- what skills staff members need,
- how products and services need to be designed,
- the customer services operations of each firm,
- how firms communicate with vulnerable customers, and
- how they monitor clients.
Stephen Lowe, communications director at Just Group, said: “This consultation will provide key evidence in the debate about whether vulnerability is best addressed within the current regulatory framework – by revising the FCA’s Principles and how they are supervised and enforced – or if primary legislation is needed to sit higher up, perhaps enforcing a statutory duty of care.
“Firms recognise that this is a very difficult area to get right and are keen to work co-operatively with the regulator to resolve the many challenges that lie ahead.
“Today’s consultation is useful for removing some of the uncertainty and adding clarity on where FCA sees policy heading,” added Lowe, who recently wrote a best practice article for International Adviser on the subject.
The UK financial watchdog set out four factors that act as drivers to actual or potential vulnerability:
- Health – health conditions or illnesses that affect the ability to carry out day to day tasks;
- Life events – major life events such as bereavement or relationship breakdown;
- Resilience – low ability to withstand financial or emotional shocks; and
- Capability – low knowledge of financial matters or low confidence in managing money.
Complex nature of vulnerability
Tom Selby, senior analyst at AJ Bell, added: “Ensuring vulnerable and potentially vulnerable customers are treated appropriately is one of the biggest challenges facing the FCA and the wider financial services industry.
“There is a common misconception that vulnerability is just about older people or those suffering from diagnosed illnesses. The reality is every single person will, at some stage in their lives, be vulnerable to one degree or another.
“The complex, deeply personal and often transient nature of vulnerability can make it difficult to spot and respond to. The FCA is therefore right to focus on ensuring appropriate responses to vulnerability are embedded in firms’ cultures.
“This is not a problem that can be solved through rule changes – instead appropriate responses need to be woven into the fabric of all financial services firms, including pension providers.
“Firms need to be constantly reviewing and updating their approaches, in line with industry best practice.”
The consultation will work in two stages.
In the first stage, the FCA is seeking feedback by 4 October 2019 on three areas:
- Whether the draft guidance covers the right issues and would provide firms with the right degree of clarity on what they should do to improve outcomes for vulnerable consumers;
- How this guidance could affect firms’ costs and the extent of benefits to vulnerable consumers from changes triggered by the guidance; and
- Whether the guidance, as part of the FCA’s regulatory framework, is sufficient to ensure firms take appropriate action to treat vulnerable consumers fairly, or whether stakeholders consider that the sector needs further policy interventions, such as additional rules, to ensure this happens.
The second stage will involve the FCA using the original feedback to consult on a revised draft guidance, while publishing a cost-benefit analysis alongside it.
If further interventions are necessary, the UK financial watchdog would also consult on these in the second stage.
Christopher Woolard, executive director of strategy and competition at the FCA, 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.
“Firms need to take particular care to ensure that vulnerable consumers are treated fairly as they may be more likely to experience harm.
“The guidance should drive improvements across the industry, improving outcomes for millions of vulnerable consumers.”