On 29h July, the FCA published GC20/3 - guidance for firms on the fair treatment of vulnerable customers.
A vulnerable consumer is somebody who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care. The FCA estimates this at 50% of the UK population, and it is expecting that more consumers will be in vulnerable circumstances since the onset of coronavirus, and many of those will be newly vulnerable and/or have multiple drivers of vulnerability. Protecting such customers is a key priority for the FCA and has been high on its agenda for some time now (since Occasional Paper 8 in 2015 it has published numerous publications on the subject).
In July 2019, the FCA published an initial consultation (GC19/3) on draft guidance that set out its views of what the Principles for Businesses require of firms to treat vulnerable consumers fairly. The FCA decided at that time to adopt a two-stage approach to consulting:
• First stage (GC19/3): seek views on the aims and content of the draft guidance and whether it is sufficient to ensure vulnerable consumers are treated fairly or if additional interventions were needed;
• Second stage (GC20/3): discuss feedback to GC19/3 and seek views on its updated draft guidance.
While the FCA notes that firms have made significant progress in how they treat vulnerable consumers, there is still room for improvement and more consistency across the industry. Evidence from FCA supervision and consumer organisations shows that some firms are failing to think about vulnerability or ensure the fair treatment of vulnerable consumers is fully embedded into their business. The FCA has taken enforcement action or banned certain practices where it has had serious concerns.
Following publication of GC19/3, the FCA conducted qualitative research to improve its understanding of the experiences of consumers who show characteristics of vulnerability; that research (the “Financial Lives Survey”) is published alongside the new consultation. It shows that the experiences of vulnerable consumers continue to be mixed, with consumers in similar situations receiving very different treatment by firms, suggesting that fair treatment of vulnerable consumers is not yet consistently embedded by all firms in their culture. The research highlights key themes in the fair treatment of vulnerable consumers:
• recognising vulnerability and responding to customers’ needs
• the value of sympathy
• the importance of empowered and knowledgeable staff
• addressing communications needs
What this means for firms:
- Firms must treat vulnerable customers fairly to comply with the FCA’s Principles for Business;
- Firms must ensure they are able to recognise and understand different characteristics of vulnerability, and have systems and processes in place to help these customers;
- The new guidance is designed to show firms the types of actions to take to understand and respond to vulnerable customers’ needs;
- The research shows good and bad practice when dealing with vulnerable customers;
- It applies to most firms with retail customers;
- Firms must do the right thing for vulnerable customers and embed this in their culture, policies and processes;
- Inaction could cause vulnerable customers avoidable harm.
Firms were generally positive and supportive of the FCA’s plans in GC19/3, but wanted more clarity including examples and case studies. After a delay resulting from coronavirus, the FCA is now consulting on updated guidance and responses are requested by 30th September. Firms are encouraged to read the research publication and also watch the FCA’s video which accompanies the draft guidance.
We want to see vulnerable consumers treated fairly and consistently across financial services sectors. The draft guidance in this consultation is intended to bring about a practical shift in firm behaviour that enables this to happen.