Each year, the Financial Conduct Authority (“FCA”) publishes selected statistics from its Financial Lives surveys, the most recent of which was published in May last year.
The Financial Lives survey provides the FCA key data to support how consumers use and engage with financial services. It can also be used to understand the various outcomes that vulnerable service users encounter.
The FCA’s expectation is that firms conduct their own monitoring of the outcomes their customers receive when using their service and make improvements where possible. It’s important that firms design and develop their services to avoid potential harms and in line with the Consumer Duty, provide good customer outcomes.
What is a vulnerable customer?
The FCA defines a vulnerable customer 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.”
Susceptible to harm includes the risk that the customers cannot make an informed decision. Susceptibility to harm may also arise from the fact that vulnerable customers can be more trusting and believe firms are acting in their best interests which could expose them to harm if firms do not conduct their business with care.
FCA’s Drivers of Vulnerability
Through the Financial Lives survey, the FCA has identified four key drivers of vulnerability. These include;
- Health– An ongoing health condition or illness affecting the ability to carry out day to day tasks
- Negative life events– Major life events such as, bereavement, unemployment or relationship breakdown
- Low resilience– Low ability to withstand financial or emotional shocks
- Low capability– Low knowledge of financial matters or low confidence in managing money. Low capability in other areas such as literacy or digital skills
Vulnerability can come in a range of guises and can be temporary, sporadic, or permanent in nature. It is a fluid state that requires a flexible, tailored response. Firms should also understand how it can be perpetuated, including by the actions, or inaction, of the firm itself.
Recording Vulnerability
Many people in vulnerable situations would not consider themselves ‘vulnerable’.
It’s important to listen out for indicators of vulnerability and encourage disclosure from vulnerable customers to help respond appropriately to their needs. Where customers make a brief or passing reference to their circumstances that indicates vulnerability, firms should proactively follow this up by asking further questions where appropriate.
Firms must ensure that they capture and record ‘relevant’ information about the customers circumstances in order to make a reasonable adjustment to their service delivery, prevent or reduce future harms, and act in the customer’s interests.
Recording a vulnerability should involve making a note on the customer’s record with helpful notes that provide information to inform the firm of the customers circumstances, and where possible, their needs.
Making Reasonable Adjustments
Recording vulnerability is a key step but it’s important that firms also make reasonable adjustments to support a vulnerable customer.
A reasonable adjustment could consist of any of the following:
- Informing the respondent that the customer is vulnerable to ensure they treat the customer accordingly and are sensitive to their circumstances.
- Utilising a preferred method of contact for those with speech or hearing difficulties.
- Agreeing specific contact times as per the customer’s requirements.
- Liaising with the customers chosen representative during the process
- Offering a payment plan or payment pause to those in financial hardship.
Importance of firms getting vulnerability frameworks right
When designing or developing products and services, firm are expected to identify their target market for whom the product and/or service will benefit. This includes identifying the objectives, needs and characteristics of the intended market, including characteristics of vulnerability.
The consequences of failing to ensure that you have properly identified your customer base may affect the way vulnerable consumers engage with the firm and may negatively impact their decision-making. Consumers with characteristics of vulnerability are more likely to make poor decisions about buying and using financial products and services, exacerbating financial difficulties, placing them at greater risk of harm.
The impact of characteristics of vulnerability could be made worse by the firm’s behaviour or business decisions. Financial products and services are increasingly being recognised as essential, however, the nature of the firm’s products may have a negative impact. Financial products and services can be complicated and can involve customers entering into extended commitments, such as instalment plans. Subsequently, the financial impact of decisions can be life changing and poor decisions can have long-term effects.
You can find more information about how the FCA expects firms to support vulnerable customers here.
