The rules that businesses will have to follow in dealing with vulnerable customers have already been strengthened, but are set to become a lot more demanding.
In July this year the Financial Conduct Authority is expected to publish its final regulations on consumer duty. As things stand, businesses are then expected to have nine months to implement the new rules, with their introduction expected in April 2023.
This follows the publication by the FCA in February last year of its finalised guidance for businesses on the fair treatment of vulnerable customers. That guidance was issued within existing rules, and was followed in December by the FCA’s final consultation paper "A new consumer duty".
The FCA first began considering the issue when it published its occasional paper on consumer vulnerability in February 2015.
More recently, the International Organization for Standardization published its paper "Consumer vulnerability – Requirements and guidelines for the design and delivery of inclusive service".
Compliance staff reading the ISO document and the FCA’s regulations will see a lot of similarity. That is no mistake. The government is pushing a vulnerability agenda across all industries and the FCA regulations are based on its interpretations of the ISO standard.
Interestingly, utilities are ahead of the financial sector when it comes to implementation, so anyone thinking that the FCA is just being tough on the industry is not seeking the complete picture.
But the FCA’s consumer vulnerability initiative deliberately raises the bar and there will be major changes to the regulations to deliver.
Simply put, the regulatory landscape is changing from one in which the onus is on the FCA to prove poor outcomes for consumers to one in which businesses have to provide the evidence they are not delivering bad outcomes for their customers. It is a major regulatory change.
Identifying vulnerable customers
The first step for businesses is to identify vulnerable customers. The FCA has defined this 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”.
Essentially, this breaks down into two parts.
Firstly, businesses need to understand the individual characteristics and circumstance of consumers and what it is that could make them vulnerable. But they also need to be clear on what is an appropriate level of care, and this may vary considerably depending on a business's activities and the kind of services it provides.
Compare, for example, a business dealing with an inquiry for life insurance, which may have only limited foreseeable harm, with an offer of a contract for equity release, which almost certainly would have a much greater risk. With the second option, a business would therefore have to ensure there was a much higher level of care.
Nor is it usually possible to define individual customers as either vulnerable or not vulnerable. Essentially, vulnerability extends along a range, applying to a greater or lesser extent to individuals in different circumstances, like being rich or poor.