FCA’s Consultation on a New Consumer Duty: Implications for Vulnerable Customers
Protection for consumers continues to drive the Financial Conduct Authority’s ongoing work. Their consultation on a new ‘Consumer Duty’ to clarify expected standards of care for consumers is currently taking comments until 31 July, with a second consultation due to be published in December 2021. Final rules will be published by 31 July 2022.
The Duty should ensure that consumers who are at a disadvantage, either due to lack of understanding, behavioural bias, or through their weaker bargaining position don’t have access to products and services that meet their needs, are better protected. Central to the FCA’s considerations here are vulnerable customers, and the Duty will mean that firms are expected to take additional care to ensure these customers receive outcomes that are as good as for other customers.
The intervening 12 months until the proposed rules come into effect provide an ideal time to ensure that policy and practices are aligned with the Guidance on the Fair Treatment of Vulnerable Consumers, which sets out the Regulator’s basic expectations and is likely to be a yardstick by which the FCA will measure practices and take action if vulnerable consumers aren’t afforded appropriate support.
The guidance clearly shows an expectation of holistic firm action, threading understanding the needs of vulnerable consumers throughout the entire product and customer journey. It isn’t enough to simply identify individual customers and take action – although this is a key aspect of the expectations – impacts and good outcomes for vulnerable customers must be considered at every stage of the product lifecycle.
The first major issue to tackle is understanding who your vulnerable customers are, and how they are affected. The FCA has suggested that firms can use a fairly simple analysis of in-house sources, such as customer transaction activity – combined with the FCA guidance, showing drivers of vulnerability – and ONS statistics to consider characteristics of consumers likely to be in the target market.
This data can then be used to analyse and audit the customer base and target audience and along with the FCA’s material on the ‘drivers’ of vulnerability, figure out which additional needs they might have. For example, a pension firm might have more customers affected by bereavement or lower mental capacity associated with some later life conditions, than customers affected by learning difficulty or low confidence in managing their finances. It makes sense that a useful adjustment would be to ensure that information and communications are targeted for customers who have been recently bereaved or customers with mental capacity problems. Appropriate edits might include a simple step-by-step guide to closing an account or providing a number to speak to a specialist team.
Communication is a principal concern within the Guidance – communications and information ‘about products and services’ must be understandable for the target market and customer base. Using plain language is always a good idea, but particular care should be taken when writing for vulnerable customers who may need complex processes or concepts more carefully explained – and of course, technical jargon is a no-no. This affects all communications and information, so websites, information leaflets and call scripts, as well as letters.
There is inevitably some crossover between vulnerability and other issues, for example, financial difficulty, which is particularly important as the UK emerges from the pandemic. The two aren’t synonymous – someone might be in financial difficulty but not be vulnerable because of their financial situation, and someone might be vulnerable but not in financial difficulty. Whether someone is vulnerable depends on their individual set of circumstances, and so it is likely that financial uncertainty over the previous fifteen months may mean that more customers are vulnerable than before. A re-analysis of creditworthiness and problem debt with a focus on appropriate support that can be offered to customers who fall into difficulty when issues do arise.
The way we do business has changed since the beginning of 2020 and we can take advantage of some of the newer methods of communicating to engage with vulnerable customers in more ways. Many customers prefer to speak to a single individual whose face they can see, but might find transportation to a physical location difficult or impossible – so video calling is an ideal and now commonplace option that can continue to be used.
Given that much of the identification of a vulnerable customer is down to interactions between staff and individuals, opening up these communication channels must be the main aim. Allow frontline staff more time if they need it, to be able to delve into customer circumstances, or to have more freeform conversations about how the customer is affected, and what they might need.
The drivers and types of vulnerability the FCA offer are a good guide, but vulnerability is an individual thing – what matters is how someone is affected, and when they might need some support from us to achieve similar good outcomes as other customers.
A key aim must be enabling staff to ask difficult questions of customers. Creating a culture where openness from customers is encouraged is tricky to do – there aren’t any step-by-step guides for doing this, but supporting staff with the right training and giving them the knowledge and practice they need to do this forms a good bedrock for that difficult conversation.
We offer a dedicated online training course on the fair treatment of vulnerable customers. Priced at just £15 per user, the course is accessible at the delegate’s convenience and provides a certificate upon successful completion, allowing firms to track and record each user’s progress.
For large groups, we can offer a simplified enrolment service and pricing, simply email Robert.firstname.lastname@example.org.