Beyond the Buzzword: Navigating FCA Expectations for Vulnerable Customers
Over the last few years, we have had lots of conversations about vulnerable customers and delivered a reasonable amount of work in this space. Across these discussions and engagements, we have spent a lot of time with firms pontificating about:
What is and is not a vulnerable customer?
How far should a firm go in seeking to proactively identify customers displaying characteristics of vulnerability?
What are reasonable and proportionate support strategies for customer displaying characteristics of vulnerabilities?
Linked to this, how far should a financial services firm actually go, in terms of helping customers manage their vulnerabilities?
How do you devise a monitoring plan and series of metrics to measure all of this, given that vulnerabilities, support needs and support strategies vary enormously?
During these debates with firms, a common theme has been whether the FCA could do more in terms of more prescriptive rules and guidance. It was therefore fascinating to see this point addressed head on at a recent Personal Investment Management & Financial Advice Association event - Vulnerability is not a buzzword | FCA.
The FCA has consolidated and clearly set out their expectations
Within their speech, the FCA clearly and very firmly set out what it wanted and expected from firms across the end-to-end vulnerable customer identification and support management lifecycle. The list doesn’t contain anything that hasn’t been said before across the Finalised Guidance and the various other speeches and publications in this space, but it is useful to have it all in one place and set out so very concisely. We are not sure that this list will satisfy those firms that are clamouring for more detail on what they should and should not do.
So, what does it all mean?
The key question is whether these demands will be fulfilled. We doubt it will, based on the FCA’s general direction of travel and the positioning of the ‘what we want you to do’ list within the speech. As part of the recent vulnerability thematic, our understanding is that the FCA has explicitly asked the in-scope firms whether the current Guidance is sufficient. We would love to see a selection of the responses to this, and we are awaiting the publication of the FCA’s thematic review report with interest.
Even though the term ‘vulnerable customer’ was first referenced in the late noughties and has been a key area of focus over the last ten years or so, our suspicion is that many firms have only really looked at this in earnest as part of their Consumer Duty projects and that many of the enhancements were still in the embedding phase when the FCA’s thematic work (which included outcome testing) was being undertaken.
What should you be doing?
Given the FCA’s emphasis on read across (and their view that businesses don’t tend to do this that well), we would suggest that all firms:
review the ‘to do list’ within the FCA’s speech.
take the time to honestly and critically assess whether they are undertaking the activities on the ‘to do list;’
ask themselves whether the activities that they are undertaking are reasonable and proportionate in light of their products, distribution channels, servicing mechanisms, communication mediums and target customer base.
The challenge with vulnerable customers is that what to do/ not to do really does require some serious thought. This does take time and resource.
As we have battled through COVID, the cost-of-living crisis and the various other geopolitical and economic stresses that have troubled the markets over the last few years whilst battling key challenges such as the rapid development of AI and big-ticket regulatory developments such as the Consumer Duty, there may not have been much time and resource to spare. It maybe that once the results of the thematic are published, that time and resource may need to be found!
As the title of the FCA’s speech suggests, vulnerability is not a buzzword.
As the closing remarks within the FCA’s speech also suggest, being able to support customers when the chips are down and when they are vulnerable is central to trust in financial services which is a key part of the regulator’s agenda.
This being the case, the focus on vulnerable customers isn’t going to go away and firms now have a clear and concise list of activities that the FCA may use as the benchmark when assessing the arrangements in place.
