Why is it important?
There are many different drivers of vulnerability, and our Financial Lives Survey showed that 50% of UK adults display one or more characteristics of being potentially vulnerable. Vulnerable consumers may be more likely to experience harm. In many cases, this risk of harm may not develop into actual harm. But if it does, the impact on vulnerable consumers is likely to be greater than for other consumers.
What is the objective sought?
The proposed guidance aims to ensure consistency of outcomes for vulnerable consumers, regardless of the sector in which a firm operates. This approach is not without challenges, especially when considering the differences between the firms and sectors we regulate.
Status of the guidance
The Guidance may also be relevant in an enforcement context, for example to help assess whether it could reasonably have been understood or predicted at the time that the conduct in question fell below the standards required by the Principles.
Permanent vs transient vulnerability and the importance of KYC
Actual vulnerability can be permanent but is often transient because consumers’ circumstances constantly change. This can cause consumers who had not previously been vulnerable to become so at some stage of their life. A consumer who loses their partner, for example, may become vulnerable at that stage of life. Equally, a consumer may no longer be vulnerable because of a change in their circumstances, for example, a previously unemployed person who now has sufficient income to cover their outgoings.
Proportionality and understanding
Principle 6, as firms need to understand the needs of vulnerable customers to pay due regard to their interests and treat them fairly. • Principle 7, as firms need to understand the needs of vulnerable customers to pay due regard to their information needs. • Principle 9, as firms need to understand the needs of vulnerable customers, to take reasonable care to ensure the suitability of their advice and discretionary decisions for vulnerable customers who are entitled to rely upon their judgement. • Principle 3, as firms need to understand the needs of vulnerable customers to take reasonable care to organise and control their affairs responsibly and effectively, with adequate risk management systems
Firms should take a proactive approach to understand the nature and extent of vulnerability in their target market and customer base. Firms should understand the impact of vulnerabilities on the needs of consumers in their target market and customer base.
For example, firms should offer alternatives such as braille and British Sign Language options as standard if it is reasonable given the target market and the size and nature of the business. Firms may need to consider providing alternatives to comply with their requirements under the Equality Act 2010.
Difficulties in identifying vulnerable customers
Customers are often unwilling, unable, or do not understand why or how to disclose vulnerability. This is especially the case in situations where customers have little direct contact, for example online only customer journeys.
Issues faced by vulnerable customers
When additional support is available, there is often little, or no, signposting. Therefore, vulnerable consumers are not always aware of the support available to them, and they are not accessing the support they need.
Guidance rather than prescription
The draft Guidance aims to make it clear to firms what they should do to embed doing the right thing for vulnerable consumers into their culture, so that it permeates across the organisation from the Board through to frontline staff. We propose providing this Guidance under the overarching Principles, rather than by setting out prescriptive requirements on firms. This is so firms can take responsibility to decide how to achieve the right outcomes for vulnerable consumers. This approach allows flexibility in the constantly changing environment for consumers and firms.
Interaction with principles
To meet the requirements under Principles 3, this means ensuring the business has the necessary knowledge and skills to treat vulnerable customers fairly, and has adequate control systems in place to ensure the firm is mitigating the risk of harm to vulnerable customers.
Quality assurance
Firms should implement quality assurance processes throughout the whole customer journey to highlight areas where: • they do not fully understand vulnerable consumers’ needs • the performance of staff has led to poor outcomes for vulnerable consumers • products or services exploit, or potentially exploit, the characteristics of vulnerable consumers that risks harm • customer service processes are not meeting vulnerable consumers’ needs • gaps in customer service mean that there are needs that are not met • the performance of staff has led to poor outcomes for vulnerable consumers
Action Points
- firms should understand the needs of vulnerable consumers in their target market and customer base (identification)
- firms should also ensure that their staff have the skills and capability to address the needs of vulnerable consumers they have identified (awareness)
- Firms could have specially trained staff who are more likely to deal with customers in vulnerable situations, or where particular vulnerabilities are prevalent in the firm’s customer base.
- Ensuring staff are aware of support provided by third-party support providers, such as debt advice services or mental health support.
- We then set out that firms should translate their understanding of the needs of their vulnerable consumers into practical action (execution)
We want to see doing the right thing for vulnerable consumers embedded in the culture of firms. This will help firms focus more on ensuring the outcomes experienced by vulnerable consumers are at least as good as those of other consumers. To achieve this, firms should not consider that a one-off process would meet their obligations under the Principles. Instead firms should embed their interpretation of this Guidance into their businesses as an ongoing process of continuous action involving learning and improvement through effective monitoring. Firms may also want to consider relevant obligations under our rules, for example in SYSC.
FCA use of guidance
The Guidance will be a tool for supervisors to use in their discussions with firms about how they are ensuring they treat vulnerable consumers fairly. We will take a proportionate approach to the application of the Guidance. Supervisors will expect firms to consider the relevance of the Guidance for their firm and, where necessary, to take action by improving existing, or implementing new, practices and processes.
The Guidance may also be relevant in an enforcement context, for example to help assess whether it could reasonably have been understood or predicted at the time that the conduct in question fell below the standards required by the Principles.
Practical steps
Firms should develop an understanding of the needs of vulnerable customers and translate this into practical action in a proportionate way and ensure staff have the necessary skills and capability to meet the needs of vulnerable consumers.
Policy/practice gap
Firms may have high-level policies in a number of areas, but there is a clear risk to vulnerable consumers if frontline staff do not implement these effectively. We refer to this as the policy/practice gap.
- Staff training is the gap
Purpose of VC policy
Creating an internal vulnerability policy that includes information on the vulnerabilities present, or likely to be present, in the firm’s target market. Formalising this information in a policy can help to raise awareness throughout the firm.
Product design
- features of products or services that deliberately or inadvertently exploit customers in vulnerable circumstances. b. features of products and services designed specifically to deliver positive outcomes for vulnerable customers. c. whether the information needs of vulnerable customers are being met so that these customers understand the purpose and risks of the product.
Record keeping
Such processes and systems should enable relevant information to be accessible to all staff who need it to ensure that: • customers don’t have to repeat information about themselves. • staff are well prepared with all the information they need to deliver good and appropriate customer service.
Data protection
It may not always be immediately obvious that information about a consumer is Special Category Personal Data. For example, information about reasonable adjustments made for a consumer because of their health may not specifically identify the health issue, but would be likely to constitute Special Category Personal Data as their health issue could be inferred.
Firms may be able to obtain explicit consent, condition (a) of article 9. Explicit consent does not have to be written, and can also be oral, however, it is more difficult to prove explicit consent when it is not in writing.