The treatment of vulnerable customers has pervaded the Financial Conduct Authority’s work, from ‘Dear CEO’ letters to the consumer duty.
While the regulator has mentioned examples of good and poor practice before, the FCA confirmed it would be reviewing how firms treat customers in vulnerable circumstances, making good on a commitment made in 2021.
The review comes less than a year after the introduction of the consumer duty, which built on pre-existing guidance on treating vulnerable customers fairly; though the regulator effectively gave firms three years’ notice about the review.
“This latest FCA focus should be a wake up call for firms who could and must do better in recognising, addressing and documenting vulnerability,” says Keith Richards, chief executive of the Consumer Duty Alliance and chair of the Financial Vulnerability Taskforce.
A long-running theme for the regulator
Guidance for firms on the fair treatment of vulnerable customers was published in 2021, but this ignores the fact that the regulator began work on customer vulnerability many years before, says Jonathan Warren, head of innovation at Altus Consulting.
“Consequently, the industry should expect minimal leniency from the FCA in their review,” he adds.
In 2015 the regulator published an occasional paper that aimed, among other things, to support firms to develop and implement a vulnerability strategy, provide good examples of how some firms treat vulnerable consumers, and highlight where they had not been treated fairly.
“Furthermore, the need to ensure the fair treatment of vulnerable customers has been reiterated as a core thread through a lot of the FCA’s subsequent work, particularly as a core pillar of the consumer duty,” Warren says.
“The industry cannot say it hasn’t had time, been reminded or warned.”
Indeed, the regulator has been seen to take a tough stance on topics where it has previously warned that firms need to take action, says Richard Barnwell, a financial services advisory partner at BDO, an accountancy and business advisory firm.
In a consumer duty webinar in December, for example, the FCA’s head of consumer investments, Kate Tuckley, said the regulator was “relatively disappointed” with consumer investment firms’ approach to vulnerability.
On the other hand, in another webinar in 2021, FCA technical specialist Mark Goold cited as part of an example of good practice how one adviser used a free tool provided by a consumer trade body to help assess his current practices around customer vulnerability.
Warren at Altus, which developed a ‘vulnerability radar’ tool with The Investing and Saving Alliance, says: “The average score of the assessments done in 2023/24 stands at 59 per cent, with the highest score standing at 83 per cent.
"The scores indicate the FCA, as you could predict, will find instances of good and bad practice, and varying attitudes and approaches."
Although Warren says that little should be expected from the regulator in the way of leniency, he adds firms can expect the FCA to be pragmatic in its review and response.
