26th February 2021
On 23 February 2021, the Financial Conduct Authority (FCA) published its guidance for firms on the fair treatment of vulnerable customers. Protecting vulnerable customers is a key focus for the FCA and it has taken on an added significance in the context of the ongoing Covid-19 pandemic. Walker Morris financial services expert Jeanette Burgess summarises the guidance and what it means for firms.
The FCA’s Principles for Businesses require firms to treat customers fairly. This new guidance sets out what firms should do to comply with their obligations under the Principles and ensure they treat vulnerable customers fairly. It applies to all firms where the Principles apply, regardless of sector. It applies to the supply of products or services to retail customers who are ‘natural persons’ (individuals but also some business/charity customers), even if a firm does not have a direct client relationship with the customer (for example, in distribution chains).
The FCA explains that the guidance will apply to firms in different ways because of the significant differences across and within sectors. Firms will need to use their judgement to decide precisely what the guidance means for them. This will depend on the specific context of the firm, including its size, the markets it operates in, the products it offers and the characteristics of its target market and customers.
A vulnerable customer is defined as someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.
According to the FCA’s latest Financial Lives Survey, there are now 27.7 million adults in the UK with characteristics of vulnerability such as poor health, low financial resilience or recent negative life events.
Characteristics of vulnerability may result in customers having additional or different needs and may limit their ability or willingness to make decisions and choices or to represent their own interests. These customers may be at greater risk of harm, particularly if things go wrong.
As the FCA explains on its website, it wants to drive improvements in the way that firms treat vulnerable customers and bring about a practical shift in firms’ actions and behaviour. It wants vulnerable customers to experience outcomes as good as other customers and to receive consistently fair treatment.
The FCA expects firms to provide their customers with a level of care that is appropriate given the characteristics of the customers themselves. The level of care that is appropriate for vulnerable customers may be different from that for others and firms should take particular care to ensure they are treated fairly. If firms do not understand the characteristics of vulnerability of their target market and main customer base, and so fail to ensure staff, products and services meet these needs, customers may suffer poor or inconsistent outcomes, or increased risk of harm.
To achieve good outcomes for vulnerable customers, firms should:
Culture is another key focus for the FCA. It wants to see the fair treatment of vulnerable customers embedded as part of a healthy culture throughout firms, not just on the frontline but also in areas such as product development. It says that firms’ senior leaders should create and maintain a culture that enables and supports staff to take responsibility for reducing the potential for harm to vulnerable customers. They should ensure that firms embed the fair treatment of vulnerable customers in their policies and processes throughout the whole customer journey.
Firms can expect to be asked to demonstrate how their business model, the actions they have taken and their culture ensure the fair treatment of all customers, including vulnerable customers.
Chapters 2 to 5 of the guidance set out more detail, including further case studies of good, mixed and poor practice and examples of what firms can do practically to implement the guidance. Firms should consider the case studies and practical examples and how they apply to their business. This will help to identify any current gaps and potential areas for improvement.
Please do not hesitate to contact Jeanette if you need any advice or assistance, including practical help with policies, systems, processes or training.