Context
The FCA has issued its latest Finalised Guidance on the fair treatment of vulnerable customers, “FG21/1: Guidance for firms on the fair treatment of vulnerable customers”. The guidance aims to drive improvements in the way firms treat vulnerable consumers so that they are consistently able to achieve outcomes that are as good as for everybody else.
Using the guidance, the FCA will continue to hold firms to account for their treatment of vulnerable customers. Firms can 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 FCA has published a summary page on its website setting out the main themes from the Finalised Guidance, which follows on from the Guidance Consultation GC20/3 issued in July 2020. The summary page includes an infographic, which also appears in the Finalised Guidance document, and which can be viewed here.
The FCA refers to its recent Financial Lives research and has announced a new Memorandum of Understanding with the Commission for Equality and Human Rights (known as the Equality and Human Rights Commission or EHRC), which sets out how the FCA will co-operate and work with the EHRC on equalities issues, to help protect people in the financial services markets.
What the FCA wants to change
The FCA wants to drive improvements in the way firms treat vulnerable consumers and bring about a practical shift in firms’ actions and behaviour. The FCA wants vulnerable consumers to experience outcomes as good as those experienced by other consumers and to get consistently fair treatment across the sectors it regulates. The FCA knows some firms have made significant progress in how they treat vulnerable customers, including in their response to the pandemic.
However, the FCA has seen examples of others failing to consider the needs of vulnerable customers, leading to harm. It is important for all firms to understand the needs of vulnerable customers and make any changes required to meet the standards set by the FCA’s existing Principles for Businesses (Principles).
Who are vulnerable customers?
A vulnerable customer is somebody who, due to their personal circumstances, is especially susceptible to harm – particularly when a firm is not acting with appropriate levels of care.
Complying with Principles for Businesses
The FCA’s Principles require firms to treat customers fairly and the Guidance makes clear what the standards set by its Principles mean for firms, so that firms understand what is expected of them. It sets out what firms should do to meet those standards.
While firms are not bound to adopt or follow any of the specific actions described in this Guidance, they must meet the standards set by the Principles and treat customers fairly. Because anyone can find themselves in vulnerable circumstances at any time, the Guidance is relevant to firms serving retail customers, including some business customers, regardless of the firm’s size or sector.
The FCA supervises and enforces against the standards set by the Principles. 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.
To achieve good outcomes for vulnerable customers, firms should take action to:
- Understand the needs of their target market/customer base
- Make sure staff have the right skills and capability to recognise and respond to the needs of vulnerable customers
- Respond to customer needs throughout product design, flexible customer service provision and communications
- Monitor and assess whether they are meeting and responding to the needs of customers with characteristics of vulnerability, and make improvements where this is not happening
The Guidance sets out the actions firms should take in each of the above areas to treat vulnerable customers fairly. Detail on each of these actions, as well as examples of how firms can put them into practice and case studies showing good and bad practice, can be found in the Guidance.
Next actions
The Guidance includes useful case studies and examples, which are clearly set out; firms are encouraged to read the Finalised Guidance document and review their processes and procedures to ensure that fair and appropriate outcomes are achieved for all customers.