The treatment of vulnerable customers has been an FCA concern for a number of years and although the guidance is not based on any new rules or principles, it does set out the FCA’s expectations of how firms should already be treating vulnerable customers, as well as highlighting that this guidance will support the FCA’s approach to supervision and enforcement, whilst applying their ‘vulnerability lens’.
Although the guidance will not apply retrospectively, firms should be mindful of the fact that they are already bound by the obligations set by the Principles for Business (PRIN). It is therefore clear, that firms subject to PRIN, including Principal firms that operate an Appointed Representative Network, must take action if not done so already to reflect on this guidance and be in a position whereby they are able to demonstrate the actions taken in respect of:
- Understanding the needs of their target market and customer base
- Ensuring that their staff have the right skills and capability to recognise and respond to the needs of vulnerable customers
- Responding to customer needs throughout product design, flexible customer service provision and communications
- Monitoring and assessing whether they are meeting and responding to the needs of customers with characteristics of vulnerability and making improvements where this is not happening.
COVID-19 impact on vulnerability
The FCA emphasise that the guidance is ‘more relevant now than ever’, which is supported by the recent Financial Lives research and panel surveys published by the FCA, which highlighted that the number of adults displaying one or more characteristics of vulnerability rose by 3.7 million between March and October 2020 to 27.7 million. Primary drivers related to employment and income changes, which led to an increase in low financial resilience, as well as health and other sudden life events, such as bereavement and new caring responsibilities.
Firms have generally adapted well to identify new drivers of vulnerability as a result of the COVID-19 impact and responded appropriately with the support of the FCA’s temporary measures and guidance, however, there is still much that can be done to embedding a vulnerable centric approach into culture, policies and procedures across the full customer lifecycle, journey and experience, and this is not just reserved for front-line staff. This too is echoed by the FCA who state that there are still inconsistencies in how vulnerable consumers are being treated.
Monitoring, review and escalation
Although demonstrating the actions taken in light of the guidance is key, firms should also expect the FCA to request information utilised to monitor whether they are achieving outcomes for customers with characteristics of vulnerability that are as good as those for other customers. With this in mind, areas that may assist include:
- Implementing processes to evaluate where the needs of vulnerable customers have not been met, including a route to escalation and remedial action
- Regularly reviewing Management Information that is relevant and proportionate to the business and customer outcomes that are sought to be achieved. For example:
- Feedback: both formal and informal feedback from customers and staff to identify trends, which may include complaints data, customer surveys, online reviews, staff forums or social media
- Customer file reviews: undertaking file reviews and call monitoring to identify if good outcomes have been achieved, including the identification of vulnerable customers and responding to changing circumstances flagged
- Process testing: performing deep dive reviews, audits and/or mystery shopping.
- Retention records: analysis in regard to why customers choose to cancel, close accounts or switch provider
- Training and Competence: training needs analysis and completion records to ensure staff are equipped to identify and respond to customer needs appropriately
- Product governance: analysis performed and results to account for vulnerable customers from idea generation, development, testing, launch and review
- Behavioural changes: use of communication channels and drop-off rates, as examples
BDO has supported firms across the financial services sector to identify risks of vulnerability across the customer journey, develop proportionate systems and controls and is fully equipped to undertake focussed vulnerability reviews and audits in context of the recent finalised guidance.
If you would like further information, please contact Richard Barnwell or Lucy Gallagher.