Being in vulnerable personal circumstances can make it difficult for an individual to make sensible decisions around buying and using financial products and services. It can also make people more susceptible to scams and mis-selling.
Who is a vulnerable consumer?
Vulnerability can cover a diverse range of personal circumstances. People may be vulnerable through mental or physical impairment, lack of financial means or because they lack literacy, numeracy or confidence and know-how to navigate their way through what can sometimes be a bewildering array of choices when dealing with financial products. Use of technology can also be a barrier to some people in accessing financial services.
Identifying vulnerable consumers is not always an easy task. Many individuals in this situation do not necessarily recognise or accept that they are vulnerable. Vulnerability may not always be obvious to an outsider and some people simply choose not to disclose their vulnerability.
Why is it important?
The way a firm treats its customers reflects its culture and ethics. It makes good moral and commercial sense for any ethically minded business to treat all customers fairly, to recognise diversity and be flexible and inclusive in the way it deals with consumers who are in a more difficult or vulnerable position than the average customer. Maintaining a good reputation and instilling trust is crucial for firms to succeed in a challenging and competitive environment.
Treatment of vulnerable consumers is an issue that the FCA cares about. Firms’ culture is also one of the FCA’s key priorities.
What do the regulators expect?
The FCA looks for good customer outcomes and fair treatment of consumers whenever they interact with firms, although the regulator accepts that a market where consumers never make poor choices is not realistic.
Striking a balance can be a challenge for firms. The vulnerable need protection and choice. Firms need controls and safety guards to meet data protection requirements, provide affordability, and to prevent people defrauding financial institutions and other financial crime.
How can firms address the issues?
Product governance
The key is to have a robust framework for the governance and oversight of products and services that aims to treat all customers fairly and actively promotes good customer outcomes. Such a framework will take account of consumer vulnerability, as well as firms’ legal and regulatory obligations in relation to the handling of customers’ personal data and preventing financial crime.
Vulnerability strategy
A vulnerability strategy should be developed, documented and implemented. An audit or gap analysis of current practices may be a good starting point to start building an effective strategy.
Some of the key elements of an effective vulnerability strategy include:
- Product design – Products and services designed to be adaptable to the needs of the more vulnerable. This includes the design of the customer experience throughout the product lifecycle.
- Systems and processes – Appropriate internal systems and processes that cater for humans.
- Identifying vulnerable individuals:
- Identifying risk factors, and spotting signs and signals, that indicate potential vulnerability in an individual.
- Good communication between front line staff and customers is crucial, and between management and front line staff.
- Adequate training for front line staff, which includes how to actively encourage disclosure and knowing when to escalate or refer on a customer.
- Flexibility - It is good business practice to streamline processes and procedures but there needs to be flexibility to meet the needs of vulnerable consumers. ‘One size’ does not fit all
- Temporary delegation – Arrangements for temporary delegation allowing a family member or carer to manage a customer’s affairs.
- Management information – Good quality up-to-date management information on product performance and service levels that identifies issues related to consumer vulnerability.
Firms should look for constructive solutions that work well for both the consumer and the firm. It is vital that firms tackle the issue of consumer vulnerability by ensuring that they have a practical vulnerability strategy that is aligned with the firm’s product governance framework, and its overall business model and strategy.
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