A broader view of consumer vulnerability

In February 2021 the FCA published Finalised Guidance for firms on the Fair Treatment of Vulnerable Consumers (FG21/1).

The Guidance sets out the FCA’s view on what firms should do to ensure they treat vulnerable customers fairly. Do not be fooled by the word “views” – the Guidance is substantially based on Rules and Principles which you must embrace.

A vulnerable consumer is defined in the Guidance as someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.  The Guidance is relevant to all firms involved in the supply of products and services to retail customers who are natural persons, even if the firm does not have a direct client relationship with the customers.

The Guidance sets out the FCA’s expectations on the following issues:-

• Understanding the needs of vulnerable consumers. Firms should understand the nature and scale of characteristics of vulnerability in their target market, and customer base, and understand the impact of vulnerability on consumers’ needs;
• Skills and capability of staff. Among other things, firms should embed the fair treatment of vulnerable consumers across their workforce and ensure that frontline staff have the necessary skills and capability to recognise vulnerability; and
• Taking practical action. Firms should consider the characteristics of vulnerability present in their target market, or customer base, and how they can meet customers’ needs through the design of products and services, their customer services and their communications.

You will notice the very strong links, both in terminology and expectations, with the requirements set out in Chapter 4 of the FCA’s Product Intervention and Product Governance Sourcebook (PROD). Therefore you should treat this Guidance as part of the source material on which your wider product design and product review processes are based. Assessing both your target market for vulnerability and assessing the impact of your product upon vulnerable consumers, must be central to your work. 

The Guidance is particularly “firm” on the need for firms to implement processes to evaluate where the needs of vulnerable consumers are not met.  We are therefore in yet another area where you are likely to have to demonstrate to the FCA exactly what you have done in order to respond to all the issues identified in the Guidance.

The FCA states that, in 2023-24, it plans to evaluate what action firms have taken in response to the Guidance and whether there have improvements in the outcomes experienced by vulnerable customers. At the same time, the FCA will look, again, at how the financial services industry is adapting to meet the needs of older consumers.

For those (now many) clients, which have had an engagement with the FCA over the “value” issue, you will be aware of how the FCA operates. You can expect an email asking you to set out, in significant detail, the processes which you have put in place in the light of the Guidance, and to give evidence as to practical outcomes which will indicate that this has increased good outcomes for vulnerable customers. 

The regulatory jigsaw puzzle has another important piece in place, via this Guidance. Please do not treat it isolation.

Your response should centre on your product oversight and governance, and the placing of the best interests of your customers at the heart of what you offer, and how you offer it. The design and targeting of products will be crucial, but the Guidance is at pains to point out that your assessments must go much further, including a good look at your firm’s wider culture, its management systems and controls and the education and training of your staff.

You can find the Guidance here:-  FG21/1: Guidance for firms on the fair treatment of vulnerable customers (fca.org.uk)