Financial services regulation is taking mental health and vulnerability more seriously than ever.
The Financial Conduct Authority, quite rightly, has been making this a priority over the past few years, impressing on all firms, whether providers or advisers, the need to address issues of vulnerability and ensure the client always has the best possible outcome to any financial planning recommendation.
While the FCA had to step back from some of its latest work on vulnerability as a result of the Covid-19 crisis, in order to focus its attention on mission critical work relating to tackling the financial issues resulting directly from the pandemic, it is by no means dropping the ball.
In fact, the FCA has made it patently clear that any client could, at this point in time, be considered as potentially vulnerable, as anxiety levels rise thanks to lockdown or the prospect of redundancy or the pressures piling onto self-employed business owners.
This also makes people more vulnerable to being scammed. We have already seen a rise in fraudulent activity, with Action Fraud reporting in July that £11,316,266 has been lost by 2,866 victims of coronavirus-related scams, with 13,820 reports of coronavirus-related phishing emails.
Moreover, people anxious about their financial future might be more tempted to encash their pensions, for example, or transfer their defined benefit pension into a defined contribution pension even if this is not the best long-term course of action.
For anybody, Covid-19 has proved difficult, but for clients in mental ill health, the problems of isolation, anxiety, fear and financial worries has exacerbated their vulnerabilities. This is why the FCA has issued guidance for firms relating to Covid-19 and made it clear that clients need an extra bit of hand-holding at this time.
Peter Hamilton, head of retail protection for Zurich, welcomes the FCA's various documentation relating to vulnerability and mental health.
He says: "The FCA’s recent consultation – Guidance for Firms on the Fair Treatment of Vulnerable Customers – is a follow-up to the initial consultation published by the regulator in July 2019.
"The guidance seeks to help firms apply the FCA's long-established Principles for Business to ensure that vulnerable customers are treated fairly and that the outcomes they receive are as good as those for other consumers. The guidance is designed to help firms embed this within their culture, policies and processes.
"Mental health problems or addictions can lead to consumers making harmful financial decisions, being more exposed to scams or more likely to purchase unsuitable products."
But with Covid-19 causing additional problems, advisers should also refer to more updated and specific information.
Jonathan Cavill, senior associate at law firm Pinsent Masons, references the FCA's March Covid-19 guidance for firms, which says firms should be “clear and transparent and provide support as consumers and small businesses face challenges at this time”.