In a guidance consultation out today (July 23) the regulator laid out what it expects from the industry and promised to take action against those which continue to fail at treating such consumers fairly.
The FCA defined a vulnerable consumer as "someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care".
The regulator has been clear the guidance did not create any "additional legal or regulatory" obligations or sector-specific rules on firms, asking only that companies take a "sensible" approach to interpreting the material.
The regulator did not provide a "checklist of required action" but rather "options" for ways firms can comply with the overriding principles.
It listed four areas for financial services firms to consider: understanding the needs of vulnerable consumers, skills and capability of staff, taking practical action, and monitoring and evaluation.
1 Understanding the needs of vulnerable consumers
There are several regulatory principles which already require firms in the financial services industry to understand the needs of vulnerable customers and treat them fairly, but now the FCA has suggested practical ways in which this can be achieved.
The regulator suggested firms should be "proactive" in understanding the extent of vulnerability in their target market, with a particular focus on training staff to recognise the needs of vulnerable customers in both face-to-face and telephone meetings.
For firms which primarily interact with customers through digital channels, the regulator said staff should be on the look-out for signs of vulnerability or the need for extra support.
The FCA said: "For example, some robo-advice tools flag support available from a human adviser if customers display certain behaviours, such as hovering for a long time before inputting information, pressing help buttons, or entering inconsistent information."
The regulator also suggested firms should consider material published by charities and trade bodies to help them understand the indicators of vulnerability.
It wants firms to be more proactive about carrying out market research, such as surveys or focus groups, to understand the risk of harm for vulnerable customers in their particular sector and to put in place an internal vulnerability policy, to help raise awareness throughout a firm.
Finally, firms should consider what they can learn from complaints received by their customers.
2 Skills and capability of staff
The FCA placed an emphasis on the impact frontline staff within an organisation can have on vulnerable customers as a "vital touch point".
According to the regulator frontline staff may not always be aware of policies that were implemented by management.
Therefore firms should ensure all staff, in particular those on the frontline, have the appropriate skills and knowledge to treat vulnerable customers fairly.
This includes understanding what type of information they should seek from customers to determine their vulnerability.
The FCA suggested firms can develop the skills of their staff through internal training programmes, appointing "dedicated vulnerability champions", developing "specialist guides", and ensuring staff are aware of third-party support providers, such as debt advice services or mental health support, which can provide support or in certain cases receive referrals from firms.
3 Practical action
The FCA suggested firms should adjust their customer service when dealing with someone who may be vulnerable.
For instance they might remove target times for phone calls where a customer is vulnerable and use terms such as "extra help" or "additional support", rather than the term "vulnerable", when interacting with customers to encourage them to disclose any specific needs they may have.
The regulator also said firms could allow customers to nominate a designated third party who can offer support during their interactions with them.
Common service components such as automated letters could be adjusted for those who are visually-impaired, for example using braille.
Many advisers will have seen the frequency at which they communicate with customers increase in recent years with the arrival of the Markets in Financial Instruments Directive, which requires firms to disclose a breakdown of all costs and charges associated with a client's investments.
The FCA said firms do not necessarily need to provide separate communications for vulnerable customers, but they should consider whether any adaptions may be required.
4 Monitoring and evaluation
The FCA expects firms to regularly monitor their performance in terms of treating vulnerable customers fairly.
Ultimately, the regulator wants to see "doing the right thing" for vulnerable consumers "embedded" in the culture of companies, but admitted this process would take different forms across different types of companies.
Across larger firms with a diverse customer base the regulator suggested monitoring vulnerable client policies would be part of an "ongoing process", whereas for smaller firms it may instead involve a "regular review".
To achieve this firms could allow staff to anonymously feed back when they think vulnerable policies can be improved and ensure it is easy for vulnerable clients to make complaints.
Industry response
Today's guidance has been welcomed by major players in the industry, with Richard Peden, UK chief compliance officer at Zurich, confirming his company was preparing to respond to the consultation.
Mr Peden said: "We welcome the FCA’s guidance consultation on the fair treatment of vulnerable customers.
"From Zurich’s perspective any customer is potentially vulnerable when their specific needs put them in a position where extra support might be needed to ensure they get the best possible outcome."
John Liver, financial services partner at EY, said the FCA had made clear it expects financial services firms to do more to improve their treatment of vulnerable customers.
Mr Liver said: "It expects staff to be trained to spot and better deal with vulnerable customers. Firms will need to ensure products, services and communications are designed with vulnerability in mind.
"Many will need to upgrade their current approaches and review and monitor their effectiveness on an ongoing basis."
He added: "The regulator recognises that the industry already has pockets of good practice but expects firms to build on this, in particular around proactively understanding the needs of vulnerable customers. There is no single best approach and firms will need to consider the most appropriate application of the guidance to their own customer base, products and channels."
Mr Liver said the regulator was "rightly continuing" a full dialogue with stakeholders on this topic and hailed the consultation as a "positive step in setting expectations".
Bill McCaffrey, head of consumer finance at law firm CMS, said: "No-one could disagree with the intention behind these proposals, the problem comes with the execution.
"Industry will find it more difficult to provide protection and ensure fairness for transient vulnerabilities.
"People do not necessarily disclose historic issues and customers who divorce or lose a job, for example, may be temporarily vulnerable but typically bounce back."
rachel.addison@ft.com
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