Dealing with vulnerable customers

You’ve probably heard that vulnerability is a pretty topical subject in FCA world right now. They released a Guidance consultation paper (GC20/3) back in July last year, with the view of releasing their finalised guidance in Q1 2021. Here’s a summary of some of the key points from the consultation paper, that we expect to be part of the final guidance.

What is a Vulnerable customer?

“Somebody who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.”

The FCA state that typically, vulnerability comes from one of the following four key factors: health, life events, resilience and capability.

What are the FCA’s expectations?

The regulator is expecting firms to embed the fair treatment of vulnerable customers into their culture, policies and processes. This should help firms to protect those that struggle to protect their own interests and those that are more prone to behavioural biases that may have a negative impact on their decision making.

Firms should ensure that staff have the required knowledge and skillset to treat vulnerable customers fairly and that adequate systems and controls are in place to mitigate the risk of harm vulnerable customers may face.

The guidance focuses on the following themes:

  • Recognising vulnerability and responding to customer needs.
  • The value of sympathy.
  • The importance of empowered and knowledgeable staff.
  • Addressing communication needs.

So, what should my firm be doing?

The draft guidance focuses on the principles underpinning the fair treatment of vulnerable customers, with a particular focus on Principle 6 – Customers’ interests. The guidance aims to get firms thinking about how they can meet their obligations under these principles by concentrating on the following areas:

  • You should be aware of, and understand the nature and scale of the potential vulnerabilities that your clients/target market may face, how these may impact upon their needs and overall customer experience.
  • Embed the fair treatment of customers across your whole workforce, ensuring that staff have the right skills and capabilities to identify and respond to vulnerable customers and can offer practical and emotional support.
  • Ensure the details of a client’s vulnerability are sufficiently recorded.
  • Ensure that products and services consider the potential needs of vulnerable customers.
  • Encourage and enable vulnerable customers to disclose their needs to you, and make them aware of the support available to them.
  • Have multiple methods of communications available for vulnerable customers depending on their needs.
  • Conduct regular reviews of your processes to ensure that improvements can be made when vulnerable customers’ needs are not being met.

The FCA will be following up on firms’ responses to this guidance by supervisory work and will be expected to demonstrate how their culture, policies and processes ensure the fair treatment of all customers.

What documents should I be amending?

The changes to vulnerability are far-reaching and will require you to adapt or update your existing policies and procedures. To ensure that you meet the requirements going forward we would recommend that you review the following key areas and build your vulnerability processes accordingly

  • Suitability reports – include changes to templates and file review processes.
  • Fact-finds – include additional information gathering sections and any third-party information.
  • Registers – create a new recording template.
  • Complaints – update and amend how you treat complaints from vulnerable clients.
  • Training & Competence – include your vulnerable training and testing and update observation and F&P requirements.
  • Systems and controls – add the process and annual review.
  • Financial promotions – identify how you will adapt promotions for any vulnerable clients.
  • Insistent/execution-only – review this process, is this still suitable to offer to vulnerable clients?
  • Fair treatment of customers (TCF) – update and review.
  • PROD – consider how vulnerable clients fit within segmentations and amend or create as appropriate.
  • AML policies and procedures – ensure AML standards are maintained and reviewed to meet vulnerable needs.

Dealing with vulnerable customers

Dealing with vulnerable customers