FCA Launches Consultation On Guidelines On The Fair Treatment Of Vulnerable Customers
Following on from its Approach to Consumers paper in July 2018, the Financial Conduct Authority (FCA) has launched a consultation on proposed new guidance for firms on the fair treatment of vulnerable consumers, which provides firms with options for ways they can comply with the FCA’s expectations.
Achieving better outcomes for vulnerable consumers is a key priority of the FCA. Firms should now consider how this draft guidance fits with the characteristics of the customers in their specific target markets and customer bases and then use this information to inform explicit, practical actions they will take to comply with the FCA’s Principles for Businesses in their treatment of vulnerable consumers. This includes how they embed doing the right thing for vulnerable consumers into their culture and behaviours, so that it transcends across the organisation, from the Board to front-line staff.
Vulnerable consumers may be more likely to experience harm. This may occur unintentionally, but firms must put steps in place to minimise the identified risks to customers which may arise in the course of their business.
Key points of note firms should take from this guidance are:
Firms providing regulated financial services must provide consumers with a level of care that is appropriate and they must have regard to the capabilities of consumers, making sure to include and support the needs of all customers. These may be different for vulnerable consumers.
Firms should ensure that their front-line staff have the necessary skills and capability to address the needs of the vulnerable consumers they have identified e.g. they must ensure that there is no policy/practice gap and that all staff are aware of high-level policies and how to implement them effectively and they should ensure that the level of customer service provided and how they communicate with vulnerable consumers is flexible and can be adapted, so that it meets their needs and leads to fair outcomes for vulnerable consumers.
Potential indicators of vulnerability include:
Behavioural biases in customers e.g. the desire to purchase a particular asset where it is not in the customer’s best interests to do so, or where the customer feels under pressure to agree to a purchase quickly when they don’t fully understand the features of a product or service but they are concerned to ask for more information;
The availability of multiple products with different features e.g. PCP, HP and PCH making it difficult for some customers, especially those who are vulnerable, to understand which product is best for their circumstances;
Vulnerable customers may be provided with the wrong information about potential products or services by staff who do not understand their circumstances, or they may be more likely to have mistakenly bought a product or a service that was not appropriate for them, as they misunderstood the features or the terms and conditions.
Quality assurance processes should be implemented throughout the customer journey and meaningful management information (MI) must be collected at different points of the customer journey so that firms can understand if customers are being fairly treated and that potentially vulnerable customers are experiencing fair outcomes. The results of these checks should be reviewed and challenged by the Board or senior managers, if they indicate that the best interests of customers are not routinely being met, in particular those of vulnerable customers, or that customers are suffering harm as a result of the firm’s actions.
A clear understanding of policies and processes must be demonstrable for all staff. Having training and management controls in place will be key to demonstrating that firms are treating vulnerable consumers fairly.