Regulation 

FCA action on vulnerable clients expected

FCA action on vulnerable clients expected

Advisers expect the Financial Conduct Authority to start formally supervising the treatment of vulnerable customers by the financial services industry.

An industry survey published today (February 6) by Just Group found almost two-thirds of financial intermediaries expected identifying and protecting vulnerable consumers to become an activity "formally supervised" by the FCA in the next five years.

Just found larger firms in particular thought the FCA was "increasingly entrenching vulnerability" into its regulation, with greater expectation on firms to proactively identify and support vulnerable customers.

The same firms had "high expectations" the regulator would implement a process to seek redress from firms where they have failed to meet the FCA’s vulnerability standards.

The FCA had already released an occasional paper on consumer vulnerability in 2015, outlining its guidance and definition of vulnerability, which it moved to maintain earlier this year when it said "vulnerability can come in a range of guises, and can be temporary, sporadic or permanent in nature".

The FCA is expected to review the implementation of vulnerable client policies in the industry this year, with Just Group’s paper claiming increased scrutiny has "certainly sharpened" the industry’s focus on this area.

Stephen Lowe, group communications director at Just Group, said: "The FCA has said up to 50 per cent of consumers could be potentially vulnerable and need extra support.

"The independent research found the typical number identified by firms was around 5 per cent or less, so clearly there is a huge gap between the regulator’s expectations and the firms’ experience."

Mr Lowe said this divide reflected the "scale of the issue" and the diverse range of vulnerable customers, encompassing people with mental and physical health issues, low financial capability, those who have experienced divorce or bereavement, or groups such as those with an addiction or ex-offenders.

He said: "Adding to the complexity is that vulnerability may be permanent or temporary and customers may not see even themselves as vulnerable or be reluctant to disclose relevant information."

Just's industry survey, which ran from November 2018 to January 2019, explored the theme of dealing with vulnerable customers in the financial services sector in the coming years, in expectation of further guidance to be issued by the regulator later this year.

It polled 102 firms, of which the majority were financial intermediaries, and held 19 interviews with firms across UK life and pensions, lifetime mortgages and advisory markets.

Just found most firms expected the FCA to retain its broad definition of vulnerability, but did identify a want for greater clarity on "harm" and "poor customer outcomes" in the regulator's guidance.

The paper read: "There was common agreement that whilst this lack of prescription is more difficult for the industry to deal with, in the long run it will avoid the temptation to create restrictive ‘tick box’ practices and processes."

Alan Chan, director at IFS Wealth & Pensions, said: "Further FCA guidance on what 'good' looks like for any high risk advice area is always greatly appreciated by the profession and dealing with vulnerable clients would be no different.