The financial services sector is a broad church; offering a wide range of products to a wide range of customers at different stages of their lives. This leads to a complex framework of regulation applying to different products.

There is one thread that unites regulation of different products – the FCA Principles - and most importantly the principle of treating customers fairly. This principle extends to all customers including vulnerable customers who may require different or additional treatment from a financial services firm to ensure that they are adequately protected.

The FCA has now released its guidance on the fair treatment of vulnerable customers. This applies to all firms authorised by the FCA.  The FCA highlights 4 key drivers of vulnerability which firms should be aware of when designing their policies and procedures:

  • Health – health conditions or illnesses that affect ability to carry out day-to-day tasks.
  • Life events – life events such as bereavement, job loss or relationship breakdown.
  • Resilience – low ability to withstand financial or emotional shocks.
  • Capability – low knowledge of financial matters or low confidence in managing money (financial capability), low capability in other relevant areas such as literacy, or digital skills.

In the guidance, the FCA sets out its expectations that fair treatment of vulnerable customers should be embedded as part of an authorised firm’s healthy culture.  In particular, the FCA highlights that to achieve good outcomes for vulnerable customers, authorised firms should:

  • understand the needs of their target market / customer base;
  • ensure their staff have the right skills and capability to recognise and respond to the needs of vulnerable customers;
  • respond to customer needs throughout product design, flexible customer service provision and communications;
  • monitor and assess whether they are meeting and responding to the needs of customers with characteristics of vulnerability, and make improvements where this is not happening.

We often see treatment of vulnerable customers being considered as a reaction to something which has gone wrong (eg a customer complaint).  This guidance is clear that firms need to be thinking proactively about the experience of a vulnerable customer.  The diverse drivers of vulnerability set out above show how hard this can be; each vulnerable customer will face his or her own unique challenges. 

Having read the guidance, there are four particular areas which I consider to be important for firms to consider:

Online / Mass-market sales journeys: We have seen many financial services businesses move to online sales models over the last year.  When designing mass-market, online sold products, our clients rely heavily on focus groups.  However, are these focus groups sufficiently diverse to represent the views of all customers who may access the customer journey?  How are firms testing that customers understand the copious amounts of pre-contract information which must be provided to customers online?  Can a customer choose to speak to an advisor by web-chat or on the phone?

Broker / Dealer distributed products: Where a product is distributed through a broker or dealer, are there clear procedures for information sharing about vulnerability?  Who is responsible for considering a customer’s vulnerabilities?

Gathering information on an ongoing basis: Vulnerability is not a static state; it will by its nature vary based on the life circumstances of a customer.  Do firms have processes in place to detect and identify changes in vulnerability over time?  Are staff trained on the signs of detecting vulnerabilities? Customers may not feel that it is appropriate to disclose this information so firms should consider how they can make enquiries in a sensitive manner to make a customer comfortable.

Training of staff: All customer facing staff should have training in how to deal with vulnerable customers and the firm’s processes and procedures. The guidance comments that it is unlikely to be good practice to have certain staff who deal with vulnerable customers so that if those staff are not available a customer cannot be supported.  That doesn’t prevent a firm having specialists; the point is that the FCA expects all staff to have a working knowledge of processes so that a customer does not receive a poor outcome where specialists are not available. 

Finally, the FCA expects firms to be able to demonstrate how they ensure the fair treatment of all customers including vulnerable customers.  This includes having management information which monitors their treatment of vulnerable customers.