FCA has now issued consultative guidance which provides plenty of suggestions, with examples, on how firms can respond on this important and high profile requirement - By Eoin Lyons
The FCA has been telling firms for some years now that they should have processes in place to suitably manage vulnerable customers so they are not disadvantaged. To help firms do this the FCA has now issued consultative guidance which provides plenty of suggestions, with examples, on how firms can respond on this important and high profile requirement.
What is a vulnerable customer?
A vulnerable customer is, according to the FCA’s definition, ‘someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care’.
There are four drivers that can create vulnerability:
- Health - conditions or illnesses that affect the ability to carry out day to day tasks
- Life events - major life events such as bereavement or relationship breakdown
- Resilience – low ability to withstand financial or emotional shocks
- Capability - low knowledge of financial matters or low confidence in managing money
Understanding the needs of vulnerable customers
Firms should understand the above drivers and how vulnerability might occur in their customer base or target market and how vulnerability might impact on their customers.
Ensure capable staff are in place
Staff need to be given suitable training on how to identify vulnerability and know how to react to it. This might also mean staff have access to internal guidance as well as external specialist support to help them.
The service or product design needs to incorporate processes and features that will not disadvantage vulnerable customers. There needs to be inbuilt flexibility to respond to vulnerable customers’ needs. This includes giving front line support staff suitable discretion to depart from standard processes. Customer record keeping systems should allow information to be recorded and easily accessible.
Communications should be clear and accessible and a range of communication options made available. Staff should be able to talk about and explain information that is issued or that appears on a website. This may mean having a process in place to analyse how best to communicate with vulnerable customers.
Firms are also expected to set up a monitoring and evaluation process to assess the customer journey and where improvements might need to be made. This could be supplemented by vulnerable customer-relevant MI which should be reviewed at the appropriate level.
Decide what practical action needs to be taken
The FCA is not prescriptive. It wants to see firms use the guidance in a way that is relevant for them. However, the regulator provides plenty of helpful examples of practical action firms can take. These include:
- Appointing a vulnerability champion
- Allow a designated third party to be appointed by the customer that the firm can also contact or be contacted by
- Create a mechanism for front line staff to feed through feedback to senior management
- Carry out an assessment of the customer base or product model on its applicability to vulnerable customers