New FCA vulnerable customers guidance calls for better treatment by financial firms

18 March 2021

New FCA vulnerable customers guidance calls for better treatment by financial firms

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New FCA vulnerable customers guidance has been published for financial firms, in a bid to champion a culture that prioritises the fair treatment of individuals who are especially susceptible to harm.

This comes after the regulator reported that 27.7 million adults in the UK have the characteristics of vulnerability, which include poor health, experiencing negative life events, low financial resilience and low capability with regards to things such as money management, literacy or digital skills.

Whilst these customers might not experience harm per se, they may still be more limited in their ability to make rational financial decisions or are at greater risk of being mis-sold. Therefore, firms are being strongly urged to comply with the standards set out in the FCA’s Principles for Businesses – of which the new guidance is helping to support.

Why has new FCA guidance on vulnerable customers been issued?

All customers are at risk of becoming vulnerable, yet in the period between February 2020 and October 2020, the number of consumers falling into the vulnerable category rose by over 3 million due to the COVID-19 pandemic.

The FCA has long been firm in its stance on the fair treatment of vulnerable customers, but recent failings by some financial institutions have highlighted the need for further improvements concerning how companies in the sector are behaving. And now, in light of the global crisis, it has become even more crucial for firms to make this a priority.

Ultimately, the aim of the FCA is to ensure that vulnerable customers experience outcomes that are just as positive as all other customers, resulting in consistent fair treatment across the businesses that it regulates.

What does the guidance entail?

The new guidance sets out clearly the expectations of the FCA, where financial organisations will be required to demonstrate how their business model, actions and culture are being shaped to ensure the fair treatment of customers, including those who are classed as vulnerable.

It specifies that to achieve this, firms must be mindful of fair treatment throughout the entire customer journey, from product design to engagement, service and communications, by undertaking four broadly defined key actions:

  1. Understanding the needs of their target market and customer base
  2. Ensuring their staff have the right skills and capability to recognise and respond to the needs of vulnerable customers

  3. Responding to customer needs through product design, flexible customer service provision and communications

  4. Monitoring and assessing whether they are meeting and responding to the needs of customers with characteristics of vulnerability, and make improvements where this is not happening

As the new FCA guidance on vulnerable customers aligns closely with the Equality Act 2010, businesses are reminded of their obligations to this too in treating customers fairly, since a breach of this legislation would result in a direct breach of the FCA’s rules.

The FCA has also teamed up with the Equality and Human Rights Commission (EHRC) to create a Memorandum of Understanding (MoU), which details how these two industry bodies will work together on equality issues to protect individuals in the financial services markets.

What specific steps can financial institutions take to adhere to the FCA’s guidance?

Firms unable to demonstrate their commitment to the fair treatment of customers more susceptible to harm during any FCA engagement will likely face supervisory action.

To avoid this, there are several steps businesses can take, derived from the four key actions stated previously:

  1. Review existing policies and procedures in relation to vulnerable customers to ensure they adhere to the latest guidance

  2. Revisit the Equality Act 2010 and the Memorandum of Understanding to discern how they align with the context of the FCA’s guidance

  3. Understand the defining characteristics of vulnerability within the target market and portfolio, adapting products, services and communications to deliver appropriate support for vulnerable consumers

  4. Take a holistic approach to the product and service lifecycle so that each stage is evaluated with the varying needs of all customers in mind

  5. Analyse existing systems and processes against the expectations outlined by the FCA and put measures in place to plug any gaps

  6. Ensure staff have the right skill set, knowledge and emotional support to recognise and deal with vulnerable customers sensitively

  7. Revise communications to ensure vulnerable customers have access to the right channels and material which they can fully understand

  8. Consider publishing key management information to demonstrate transparency regarding vulnerable customers

  9. Embed the FCA’s guidance into the business culture to align all employees and operations, establishing the fair treatment of vulnerable customers as a number one priority

Managing the risk of treating vulnerable customers fairly

With the number of vulnerable customers continuing to rise in the UK, financial organisations must manage this risk just like any other to guarantee their compliance with the latest regulations, and to protect their company reputation by ensuring they don’t fall short in treating all customers fairly.

The new guidance from the FCA is undoubtedly a step in the right direction to helping firms achieve this. However, technology can also afford a great many benefits when it comes to delivering real-time visibility of the risks relating to vulnerable customers, enabling organisations to make informed decisions and increase their performance.

Read our latest case study to find out how Admiral Group is managing its full spectrum of risks with our powerful Enterprise Risk Management Software.

You can also book a free demo with our friendly team to see how Pentana Risk can support your firm in aligning to the new FCA vulnerable customers guidance, whilst mitigating any threats and exposing opportunities.

Written by

Alexandria Claypole

As Content Marketing Executive at Ideagen, Alex delivers insightful and actionable content to help organisations worldwide better understand the intricacies of the auditing, risk and compliance world. With strong roots in the technology sector, Alex is committed to advocating software solutions that support businesses in both achieving and exceeding their objectives.

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