The FCA wants to see vulnerable consumers treated fairly and consistently across financial services sectors. One of the key areas of focus in the FCA’s 2020/21 Business Plan is ‘ensuring that the most vulnerable are protected’.
In 2019 the FCA published an initial consultation (GC19/3) and carried out a costs benefit analysis (CBA) exercise. You can read our articles outlining the details of these here and here. Also, our article on 2 April 2020 provides a further overview in the context of coronavirus.
The FCA has now analysed the responses and issued draft guidance in their second consultation, GC20/3, which opened on 29 July 2020. The closing date for responses is 30 September 2020, with final guidance planned by later in 2020 or early in 2021.
This guidance was put on hold while the FCA reprioritised resources towards urgent interventions related to the coronavirus pandemic. It is being published now because the FCA expect coronavirus and lockdown measures to have significantly increased the number and severity of issues affecting consumers. While the matter was on hold, the FCA carried out further research, including research to supplement their Financial Lives Survey.
The FCA’s research and engagement with firms indicates that many firms have made good progress in understanding and addressing vulnerability issues. However, evidence also shows that not all firms treat vulnerable customers fairly, with the consequence that these consumers experience harm. The draft guidance in this consultation is intended to bring about a practical shift in the behaviour of firms and will act as the baseline for the FCA’s supervisory approach in this area.
The research highlighted key themes in the fair treatment of vulnerable consumers to be:
- Recognising vulnerability and responding to customers’ needs;
- The value of sympathy;
- The importance of empowered and knowledgeable staff;
- Addressing communications needs.
The Financial Lives 2020 survey found that just under half (46%) of UK adults, aged 18 and over, display one or more characteristics of vulnerability. The FCA points out that this research was carried out in the months before the pandemic and that it is likely that the number of vulnerable consumers will now be higher due to the impact of the pandemic and lockdown measures on consumers.
There will be no implementation period; the final guidance will take effect from when it is issued as it will be in relation to existing Principles. The FCA will then monitor how firms respond to the guidance through supervisory work and ‘firms will need to be able to demonstrate how their culture, policies and processes ensure the fair treatment of all consumers, including those who are vulnerable’.
Following publication of the final guidance, during regulatory interactions assessing firms’ senior managers, the FCA will ask them about the actions their firms are taking to ensure that vulnerable consumers are treated fairly. Firms can expect to be asked to demonstrate the actions they have taken to:
- Understand the needs of their target market/customer base;
- Ensure staff have the right skills and capacity to respond to the needs of vulnerable customers;
- Respond to consumer needs through product design, flexible customer service provision and communications;
- Monitor that the needs of their vulnerable customers are being met and responded to;
- Collect information on the impact of their policies and processes; and
- Assess how they are resulting in good outcomes for vulnerable consumers.