Consumer Duty and Vulnerable Customers

The term ‘vulnerable customer’ is peppered throughout the FCA’s Consumer Duty policy statement and finalised guidance. This is no surprise as the FCA have been focusing on vulnerable customers for some time, dating all the way back to the Occasional Paper published in 2015. Since then, a lot has happened, including a global pandemic and harsh geopolitical and economic conditions, evidenced by the cost-of-living crisis.

The latest edition of the FCA’s Financial Lives survey, carried out between February and June 2022, makes for fairly bleak reading with the overall proportion of UK adults with characteristics of vulnerability increasing from 46% to 47% (mainly due to low resilience) – an increase of nearly 1 million. Against this backdrop, vulnerability considerations have become even more important and pressing.

In its Finalised Guidance in 2021, the FCA defined a vulnerable customer 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.”

This definition is very broad and is deliberately not restricted to certain identifiable groups (the elderly, the disabled, those with dementia, etc) but applies to anyone where circumstances or events place them in a vulnerable state and may affect anyone at various stages of their lives. Individual consumers may not acknowledge or even know that they are experiencing vulnerability.

In other words, anyone can be vulnerable.

And this is the very crux of Consumer Duty – to ensure that all consumers, irrespective of their situation, receive a good outcome.

Every customer, especially vulnerable ones, should benefit from the inclusivity of the new regulations, as stated in the introduction to the FCA’s final guidance, FG22/5, Section 1.27:

“We expect consumers with characteristics of vulnerability to benefit from the overall improvements in outcomes delivered as a result of the new Duty …”

The Duty makes clear reference to the fact that firms need to pay attention to the needs of customers with characteristics of vulnerability and there is an expectation that firms proactively identify the outcomes for different groups of customers, in particular vulnerable customers, as part of their target market analysis. Vulnerability considerations are a clear theme in implementing the new Consumer Duty outcomes: products and services should be designed to meet different needs and characteristics with appropriate features built in, e.g. forbearance, flexibility, more time to make a decision.

They must provide fair value, avoid causing foreseeable harm and support customers; communications must be understood by customers with characteristics of vulnerability and a firm’s approach to monitoring must identify where communications are not being understood and modifications and / or remedial activity is required to be carried out.

Customer support must be suitable for customers with characteristics of vulnerability and enable them to make full and effective use of products and services; governance and reporting arrangements must promote awareness of characteristics of vulnerability; and finally, documenting and monitoring the delivery of good outcomes to all consumers is crucial.

Given the increased emphasis Consumer Duty places on delivering good outcomes and treating customers fairly, firms are required more than ever to consider characteristics of vulnerability and have appropriate policies and processes in place. Firms should re-assess their current Vulnerable Customers framework to identify relevant data already available to inform policy, enable staff to provide reassurance and support to vulnerable customers and demonstrate compliance to the regulator.

The FCA’s new Consumer Duty clearly emphasises the importance of vulnerability considerations and reinforces the FCA’s previous guidance. Vulnerable customers should therefore rest assured that their customer journey will be improved. The focus of Consumer Duty is on ensuring positive outcomes for all consumers including those with vulnerable characteristics.

It raises the bar for everyone.