Over the past few years, the FCA has placed significant emphasis on client vulnerability within financial services, which has led to numerous changes for regulated firms – hopefully, we can all agree, for the better.
We’ve seen various processes implemented: from vulnerability registers, questionnaires, training, all the way through to tech amendments; for example, the implementation of vulnerability flags on back-office systems highlighting where vulnerabilities exist.
Due to the nature of vulnerability and its different characteristics, the implementation of vulnerability processes has not been easy. Each firm we work with has taken their own individual stance in order to implement the process that best suit their current and potential vulnerable clients. But there is still an element of flexibility needed.
If we start at the beginning with reviewing what the FCA defines as a vulnerable customer we read that it’s: “Someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.”
The FCA goes on to denote the most relevant principles that underpin the fair treatment of vulnerable customers as follows:
- Skill, care, and diligence
- Management and control
- Customer’s interests
- Communications with clients
- Customer: relationships of trust
It’s important to reflect on some key facts about client vulnerability here in the UK.
- 5 million adults lack basic literacy and numeracy skills
- The total household debt in Great Britain is £1.28 trillion (ons.gov.uk)
- There were 529,532 registered deaths in England and Wales in 2019 (ons.gov.uk)
Taking one step further, let’s focus on the four examples of potential causes of client vulnerability, as defined by the FCA:
- Life events
Reading this, you may be asking, “Why reiterate what we already know?”
Well, you might have noticed that little thing called Consumer Duty; it’s important to understand how this impacts firms and their attitude towards vulnerability.
The FCA has implemented a new ‘Consumer Principle’ which focuses on four outcomes: design of products and services, price and value, consumer understanding and consumer support.
Let’s break these outcomes down in the eyes of vulnerability.
Outcome one, ‘Design of Products and Services’, this refers to your PROD and client segmentation. Firms should be reflecting on how they identify vulnerable clients and what they are offering.
Outcome two, ‘Price and Value’ entails evidencing that you have highlighted someone as vulnerable and charging them appropriately and fairly. This should not mean charging them over and above what you would necessarily charge for a typical client, nor should it mean undercharging them for your time and services, specifically if you have had to amend for their vulnerability.
This outcome requires an element of personal judgement and should be looked at on an individual case by case basis depending on the client’s vulnerability type.
Firms often appoint a vulnerability champion, this would be a good person to have in any cases where vulnerability characteristics arise.
Outcome three, ‘Consumer Understanding’ requires firms to evidence that when speaking with a client, the client can demonstrate understanding. This can come through digitally - such as through email, as well as through dialogue. Unfortunately, it isn’t as easy as just asking the client if they understand, and if the client has a vulnerable characteristic, it’s about knowing how to test their understanding on an individual basis.
Outcome four, ‘Consumer Support’, covers how your clients speak to you and how they can get help, should they require it. Have you flagged the client as vulnerable on your back-office system so that employees across the firm can immediately see the client is vulnerable upon reviewing their file and speaking to them?
Where possible, look to be accessible across a multitude of platforms in order for your clients to communicate with you in their preferred way - telephone, email, written, to name a few. We have seen some firms create relationships with translators and have dedicated referral teams where and when braille is needed. Remember to do the appropriate due diligence and screening when using a third party to remain GDPR compliant.
Consumer Duty has just highlighted the need for firms to prioritise their understanding and processes with regards to vulnerable customers. Consumer Duty doesn’t implement anything new, in fact the regulator leans on the fact that it’s comfortable with the initial guidance, but Consumer Duty further brings in that positive client outcome to the forefront.
You can find more information on how we can help with Consumer Duty here.