Tuesday 23rd February saw the FCA release their follow-up to the 2020 Guidance Consultation (GC) on Vulnerable Customers – Finalised Guidance (FG21/1) for firms on the fair treatment of vulnerable customers.
Built out further with the FCA’s own experiences of the Covid-19 Pandemic and feedback from respondents, the Guidance does not look markedly different from last year’s GC but does make a number of points firms should take on board and consider.
Impact of the Pandemic
The FCA’s Financial Lives 2020 survey showed that by February 2020 46% of UK adults displayed one or more characteristics of vulnerability. The FCA’s Covid-19 panel survey found that this had increased to 53% of UK adults in October 2020, showing that there were many more people who found themselves at greater risk of harm due to the pandemic and its effects.
With a further pair of extensive lockdowns in November 2020 and from December 2020 to March 2021, the FCA expects even greater numbers of consumers to be affected by bereavement and health issues, including poor mental health, as a result.
The FCA expect the Guide to be more relevant than ever for firms, providing a clear steer on the actions they can take to ensure the fair treatment of vulnerable customers, and how consumers can expect to have their needs met.
Clear next step expectations for firms
The new guidance has provided a new ‘vulnerability lens’ that the FCA will use when supervising and enforcing the standards set in their Principles and rules. Firms can expect to be asked to demonstrate how their business model, the actions they have taken, and their culture, ensures the fair treatment of all customers, including vulnerable customers.
This creates the challenge of firms being able to proactively evidence consideration of customer vulnerability across:
- Strategy development and setting
- All elements of the customer lifecycle, including development of new products and amendments to those already being offered
- Hiring of staff and role profiling
- Training & development and monitoring of complimentary behaviours
- Performance management including remuneration and incentives
- Risk oversight and monitoring processes, including quality assurance
Culture is key and vulnerability is not just a customer-facing consideration
The FCA want to see the fair treatment of vulnerable customers embedded as part of a healthy culture throughout firms, not just through customer-facing interaction but also in areas such as product development and in their overall business models.
Onus is on senior leaders to create and maintain a culture that enables and supports staff to take responsibility for reducing the potential for harm to vulnerable customers.
Vulnerability should be taken seriously by all firms, including those that do not have direct interaction with consumers, or are part of a distribution chain.
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