Fraud can happen to anyone, and fraudsters look for opportunities to exploit by seeking to target those they deem to be vulnerable.
As part of our roles within financial services, it’s our job to stay alert to potential fraud and watch out for those clients who may be especially vulnerable.
The FCA has published a number of papers and resources on treating vulnerable consumers fairly.
It defines a vulnerable consumer 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.”
Research has shown that people don’t recognise themselves as being vulnerable, which can make vulnerability all the more difficult to identify.
Vulnerability can be permanent, temporary or recurring, depending on the person and the nature of what makes them vulnerable.
The FCA sets out four key drivers which may increase the risk of vulnerability:
- health – disabilities or illnesses that affect the ability to carry out day-to-day tasks;
- life events – major life events such as bereavement, job loss 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 (financial capability), and low capability in other relevant areas such as literacy or digital skills.
Fraudsters will target clients who fall into one or more of these categories.
Over the past year, the coronavirus pandemic has highlighted how quickly a person’s circumstances can change. And with changing circumstances, people can find themselves at greater risk of becoming a victim of fraud.
As has been discussed on Illuminate in the past, in March Action Fraud saw a 400 per cent increase in fraud reports, which goes to show that fraudsters are using these uncertain times to exploit their victims.
Given these circumstances, it’s especially important that we identify signs of vulnerability and provide the appropriate support where necessary.
What firms can do
The FCA has asked firms to take more action when it comes to protecting their clients against fraud, particularly those who display one or more attributes of vulnerability.
When your systems and processes aren’t up to date and secure, it makes it more difficult to identify both vulnerability and fraud.
If vulnerability is difficult to identify then clients don’t get the level of protection they deserve, leaving them at a greater risk of fraud.
In July, the Personal Finance Society (PFS) encouraged advisers to act as a barrier between fraudsters and victims.
The PFS highlighted the following warning signs for consumers (and everyone) to look out for when it comes to investment fraud and scams:
- Unexpected contact – fraudsters can use a range of methods to contact victims, from the traditional cold call to online approaches via email and social media, and even via post or word of mouth.
- Time pressure – this involves putting an individual on the spot and offering a special offer or discount if they meet a specific timeframe. This time pressure might mean the consumer doesn’t have a chance to think or reflect on what’s being offered.
- Social proof – fraudsters could provide so-called ‘proof’ that they then claim shows how other people have benefited from the same investment.
- Unrealistic returns – offers that sound too good to be true and could be completely unrealistic.
- False authority – the information used to prove certain claims could be fabricated and designed in a way that makes it hard to tell if it is from a legitimate and regulated source.
- Flattery – a fraudster could build a rapport and friendship creating a false sense of trust.
These warning signs should be applied to everyone; however, the risk is higher for vulnerable clients.
It's worth remembering that anyone can be a victim of fraud and anyone can become vulnerable at any point.
Protecting vulnerable clients from becoming victims of fraud should be a key priority for all of us, so it's important to take the necessary steps to make sure systems and processes are up to date, while always being mindful of any fraud warning signs.