On top of this and just a couple of weeks later in July, new consumer duty detail was also released by the FCA.
Both the guidance, and indeed the new detail, have been long awaited. And while the FCA’s direction of travel on vulnerable customers has been clear for some time, the pressure caused by the cost of living crisis and the impending recession has brought even more urgency to the issue – and rightly so.
Because quite frankly, now is the time for firms to sit up and make sure they are supporting their vulnerable clients, while also taking note that there is an expectation to act promptly while the guidance moves to regulation and principles during the implementation period.
The issue is though, are firms really sitting up and taking action right now? Or are some still not taking this issue seriously enough?
Our perception is that until customer vulnerability plays a much bigger part on the boardroom agenda, progress will remain painfully slow. And this is not only a serious worry for the thousands of people out there who are financially vulnerable; in fact, the FCA estimates that one in two adults could be at risk of financial vulnerability. But it is also a very risky situation for financial institutions to put themselves in, especially given the increased regulatory scrutiny and probable fines if they fail to act accordingly.
Moving focus
So how can we switch the board, both executive and non-executive members, onto customer vulnerability?
Up until now, we have seen boardroom discussion in this area focus predominantly on customer complaints data, perhaps because it is more obvious and arguably easier to solve than financial vulnerability – it is also more readily available data.
In the meantime, the issue of customer vulnerability has remained somewhat a confusing and highly subjective issue for financial institutions to combat and one which they have not traditionally been trained in.
And certainly, the nuanced nature of financial vulnerability has made this process very difficult for customer-facing staff; this has been exacerbated by the pandemic, not least given the rising levels of mental health issues we are currently witnessing in the UK. So much so in fact that symptoms of depression, anxiety and other potentially debilitating conditions have almost doubled in the UK during the pandemic.
That being said, some good progress has been made, not least due to better tech being deployed around vulnerability identification (leading to better data) and vulnerability working groups being set up in many larger financial institutions. This is a good start.
The challenge remains however, that there is a large disjoint between the three main groups that will need to tackle the issue of customer vulnerability – namely the board, the advocates leading the vulnerability working groups or indeed those who are championing the issue and the more operational customer-facing staff themselves.
Cultural change
If financial vulnerability is to become a fundamental part of a business, and if a board is going to be able to make informed decisions on customer vulnerability, then all three of these parties need to work more closely together.
Not only this, but they will also need to embed cultural change from both the bottom up and indeed the top down around this important topic, so that everyone understands its significance.
And central to this will be data. All these groups need better reporting, greater visibility, and more robust processes around customer vulnerability.
Cutting-edge technology can help with this and will need to combine both digital and clinical insight to produce accessible and easy-to-use data points for businesses to better understand vulnerability, mitigate their business risks and better protect their clients.
And not only will better data ensure a more streamlined and robust process across these three key groups, it will also allow for a clear and consistent audit trail to assist a business in its regulatory requirements should the regulator come knocking.
On the topic of data and intelligence, it is important to consider what questions non-executive board members might ask – namely, how can you be sure you are identifying everyone in vulnerable circumstances; do you understand your client well enough to know what is required if they are found to be vulnerable; and where is the board report that will demonstrate this all?
In order for boards to establish good governance, these three powerful questions are fundamental.
Now is the time to switch the board onto the topic of customer vulnerability before it becomes too late. There is no scope to simply delegate this issue to another group, but rather a combined systematic process is required by all parties. This process should be wholly reliant on data and should be ingrained into the very culture of a company too.
Jonathan Barrett is chief executive and co-founder at Comentis