Managing Vulnerable Customers and the Regulatory Burden

The Financial Conduct Authority’s (FCA) second consultation into principles of business (GC20/3) closed at the end of September 2020. During the period between closure of the first consultation (GC19/3) in October 2019 and publication of the second Consultation in July 2020, Covid-19 strengthened the FCA’s perspective on customer vulnerability, which can also be clearly identified in April’s Business Plan as well as GC20/3.

Finalised guidance is due in Winter 2020 and is likely to lead to a tougher regulatory regime for firms and their treatment of vulnerable customers.

Although the 2023 regulatory deadline is in the distance, as the FCA’s temporary and additional guidance for firms around coronavirus highlight, the regulator is viewing many firm activities through a “vulnerability lens” and will use the future principles of business guidance to hold firms to account. Therefore, the published guidance later this year should encourage leaders to take the appropriate steps sooner rather than later, both in the interests of their customers and of their firms.

Firms are already creaking under the regulatory burden of Collections, SMCR, Credit Risk and Covid-19. However straightforward steps can be taken in the short and medium term to get on track:

1. Definition – Define what a Vulnerable Customer looks like in the post-COVID world. Ensure that first line staff are trained to identify signs of vulnerability, both temporary and permanent. Employ the tools necessary to identify emerging patterns and warning signs of vulnerability.
2. Accountability – Appoint an owner for Customer Vulnerability. For firms working through SMCR implementation then ensure that customer vulnerability is explicitly labelled in accountability frameworks. For those already SMCR compliant, review your accountability frameworks and adjust.
3. Governance – Make Customer Vulnerability a visible priority both internally and externally. Ensure that desired customer outcomes are clear in your strategy, policy, principles and products. Understand and document risk areas in new products and design controls against those points, ensuring an owner is appointed to deliver follow up actions.
4. Systems and Controls – Review systems and controls to understand if your current approach is working. Your systems and controls should flag early warning signs and identify troubling patterns with potentially vulnerable customers. If the approach is working, ensure that you continue to act on the patterns that emerge from your MI. If the approach is not working then move quickly, with first and second line working together to establish new processes.
5. Create and empower specialists – The FCA’s move to view firm activity through a vulnerable customer lens is reflective of the evolution from the more reactive TCF to the more proactive, holistic management of Conduct Risk. The firms who best adapted to that transition fostered a proactive approach by creating new and specialist roles operating between first and second line.

For any support needs you may have around meeting the FCA’s expectations around Vulnerable Customers, feel free to contact our Consulting Team