The Financial Conduct Authority has issued its finalised guidance for how firms should treat vulnerable customers. It follows the publication of the Vulnerable Lives survey, which showed that the Covid-19 pandemic had increased the number of vulnerable consumers, to the extent that the majority of UK adults are now potentially vulnerable.

The FCA seeks to “bring about a practical shift in firms’ actions and behaviour”. It wants “vulnerable consumers to experience outcomes as good as other consumers and to get consistently fair treatment.”

Its definition of a vulnerable customer is:

“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 key drivers of vulnerability are considered to be:

  • 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, poor literacy, or limited digital skills

Sometimes, one vulnerability can lead to another, for example, a health condition can lead to a loss of employment, or a relationship breakdown can result in mental health issues.

The regulator stresses that the guidance is likely to be relevant to all authorised firms who serve retail customers, regardless of their size or the sector they operate in.

The four key elements of a firm’s vulnerable customers’ strategy should be:

  • Understanding the needs of their target market and customer base, including the drivers of their vulnerability, the impact of this vulnerability and the effect this has on the outcomes they receive
  • Ensuring staff have the right skills and capability to recognise and respond to the needs of vulnerable customers
  • Responding to the needs of vulnerable customers via appropriate product design, flexible customer service provision and communications. Firms should consider how their vulnerable customers prefer to communicate, and ideally a range of different communication methods would be offered. As part of the customer service provision, customers may need to be made aware of appropriate external support organisations or may need a third party to act on their behalf when dealing with the firm. Any information about vulnerabilities should be recorded so staff can respond appropriately in future dealings with the customer
  • Monitoring and assessing whether they are meeting and responding to the needs of vulnerable customers and making improvements where this is not happening. This should include reviewing appropriate management information

Some firms might have a customer base with a common characteristic, for example a high-cost credit provider might have a larger number of customers with an unpredictable or low income.

Indicators of vulnerability might include:

  • Changes in payment patterns
  • Customers mentioning payment difficulties or contact with a debt adviser
  • Customers saying they have difficulty reading documents
  • Customers who struggle to understand simple concepts
  • Shortness of breath
  • Signs of agitation
  • Asking for information to be repeated

Failing to respond effectively could create additional vulnerabilities. For example, not offering appropriate forbearance when a customer is in severe debt could lead to additional anxiety and depression.

Senior management have an important role to play in creating a culture where staff are encouraged to treat vulnerable customers fairly. Important considerations here include:

  • The firm’s purpose, as understood by its employees
  • The firm’s approach to managing and rewarding people, such as the incentive schemes they operate
  • The firm’s governance arrangements, controls and key processes, such as for whistleblowing or complaint handling

Nisha Arora, Director of Consumer & Retail Policy at the FCA, said:

“Protecting vulnerable consumers remains a key focus for us and given the impact of the Coronavirus pandemic, it is more important than ever that firms get this right. The guidance being announced today will help ensure vulnerable consumers are treated fairly and achieve outcomes as good as other consumers.

“While some firms have made significant progress, we want to see all firms across sectors taking steps to understand and respond to the needs of their customers, particularly those who are most vulnerable to harm.

“We also remind customers to tell your providers if you have specific needs – whether that’s due to ill health making it difficult to access a service, or a recent emotional or financial shock that is impacting your finances. Doing this will help firms support you.”