FCA publishes customer vulnerability guidance

Pension companies must work to understand the characteristics of vulnerability that are likely to be present in their target market or customer base, according to new guidance from the Financial Conduct Authority (FCA).

The regulator’s new guidance for firms on the fair treatment of vulnerable customers calls for companies from different ends of the financial services sector to be more aware of customers’ vulnerabilities, for example noting that common characteristics of pension customers may involve health and life events associated with old age.

It also noted that firms needed to be aware that some characteristics of vulnerability, such as bereavement and relationship breakdown, would be present in all sectors.

Although it offers guidelines, the new guidance does not provide a checklist of required actions, as it will apply to firms in different ways because of the significant differences across and within sectors.

The regulator said firms would need to use their judgement to decide precisely what the guidance means for them, something which will depend on the specific context of the company, including its size, the markets it operates in, the products it offers and the characteristics of its target market and its customers.

The FCA explained that it would use the guidance to “continue to hold firms to account for their treatment of vulnerable customers”, adding that firms could “expect to be asked to demonstrate how their business model, the actions they have taken and their culture ensure the fair treatment of all customers, including vulnerable customers”.

The regulator noted that its recent Financial Lives survey had showed that 27.7 million adults in the UK had characteristics of vulnerability such as poor health, experiencing negative life events, low financial resilience or low capability.

Firms were encouraged to understand what could harm their vulnerable customers and ensure that they received the same fair treatment and outcomes as other customers, with this happening through the whole customer journey from product design through to engagement and communications.

FCA director of consumer policy and retail, Nisha Arora, said: “Protecting vulnerable consumers remains a key focus for us and given the impact of the coronavirus pandemic, it is more important than ever that firms get this right. The guidance being announced today will help ensure vulnerable consumers are treated fairly and achieve outcomes as good as other consumers.

“While some firms have made significant progress, we want to see all firms across sectors taking steps to understand and respond to the needs of their customers, particularly those who are most vulnerable to harm.”

Canada Life technical director, Andrew Tully, commented: “The issue of helping vulnerable clients is not new, but it has become particularly prevalent in the wake of the pension freedoms where more people still have money invested later in life, or risk becoming a victim of scams.

“In addition, Covid-19 has exacerbated the challenges for many vulnerable people, while many others have found themselves newly vulnerable due to the pandemic.”

Quilter corporate affairs director, Jane Goodland, added: “Vulnerability can be deeply personal and an issue customers are unlikely to shout about or may be unwilling to discuss, so a crucial challenge for all companies is to identify customers on the spectrum of risk. This is easier said than done in a world with less human-to-human contact, even before the pandemic.

“All employees of financial services firms have the skills and capability to recognise and deal with customers who display signs of vulnerability, so the FCA’s guidance on embedding fair treatment of vulnerable customers across businesses is a big step in the right direction.”

Goodland concluded: “The missing piece of the puzzle is financial capability and financial education. Navigating your financial choices whilst displaying a characteristic of vulnerability can at times feel like an unsurmountable challenge, and financial education is vital to give people the tools they need to navigate their money choices.”

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