FCA Vulnerable Customer Review Report: some good progress but.....
Since 2013, the term "vulnerable customer" has been a key feature of regulatory parlance. Over the years, the Financial Conduct Authority (FCA) has released occasional papers, discussion papers, and both draft and final guidance on the topic. It has also been a key theme across portfolio strategy letters, Dear CEO letters, thematic reviews, speeches, and s166 Requirement Notices.
A simple search on the FCA’s website for "vulnerable customer" yields around 2805 results (at the time of writing), with 412 of these being publications that contain the term. It is quoted in pretty much all of the FCA Strategy letters (which set out current and future areas of focus across the different sectors of the financial services market) that have been issued in the last 12 months. Most reference the work that the FCA is or has undertaken, and the importance of correctly identifying and providing appropriate support to vulnerable customers.
Against this backdrop, the financial services industry has been eagerly awaiting the results of the FCA’s comprehensive market review, and it’s finally been published.
The headline seems to be that good progress has been made but (why is there always a ‘but), there are areas where further improvement is required.
Firms now need to use this to ensure that their systems and controls meet FCA expectations. We will be producing a gap analysis to help you self-assess this, but in the interim, here are the key questions to be asking areas to think about:
Have you defined good and poor outcomes for vulnerable customers (VCs) within the target market for each of your products? And how is this monitored? The FCA's review suggests that many firms struggled to demonstrate a clear understanding of what constitutes good outcomes for customers with different or additional needs. Given that the FCA has previously suggested that vulnerable customers should receive as good an outcome as non-vulnerable customers, it is understandable that many firms haven’t felt the need to define some specific/tailored outcomes; however, that does seem to be the suggestion or implication. This ultimately means that are struggling to understand what they need to deliver, test and demonstrate. Firms also found it challenging to monitor outcomes for customers in vulnerable circumstances, often underestimating the depth of monitoring required or choosing only to monitor readily available data.
What steps have you taken to improve data quality and measurement of outcomes for VCs? According to the FCA's review, poor quality or insufficient data prevents firms from effectively measuring customer outcomes. Firms often rely on data that lacks breadth and granularity, limiting their ability to compare and reach conclusions about outcomes for different groups of consumers.
Can you demonstrate the actions that have been taken, and do you have clear policies on what actions should be taken in response to poor outcomes for VCs? The FCA's review suggests firms have unclear and inconsistent approaches regarding when to act and what actions to take in response to poor outcomes. It is often hard to see when or how escalations would happen due to unclear policies, processes, and thresholds for taking action.
How do senior leaders oversee outcomes for VCs in your firm? The FCA's review highlights a lack of engagement, challenge, and direction from senior leaders. There is limited evidence of firms consistently reviewing the effectiveness of actions, with only 39% of firms having formal governance bodies or committees overseeing outcomes for vulnerable customers.
What steps do you take to proactively identify signs of vulnerability and encourage disclosure from VCs? The review suggests that some firms fail to take steps to identify signs of vulnerability and encourage customers to disclose their needs, particularly in digital journeys. Customers often have to repeatedly disclose their circumstances because their provider fails to make appropriate adjustments.
Are you responding flexibly and with care to the needs of VCs? The FCA highlights inflexibility in processes which has led to staff making unsuitable suggestions or requests. Firms need to respond flexibly to customers' needs and act with an appropriate level of care when engaging with customers in vulnerable circumstances.
Is the information provided to VCs clear and consistent? The FCA's review reveals that consumers in vulnerable circumstances are more likely to report not receiving the information they need. This is particularly true for those facing multiple challenges, such as poor health, negative life events, and low resilience.
Are communications from your firm timely for VCs? The FCA's review shows that vulnerable customers often experience slower responses to enquiries compared to other customers. Improving the timeliness of communications is crucial.
How have you tailored communication channels to meet the needs of VCs in your firm? The FCA's review suggests that customers in vulnerable circumstances are less likely to say their financial service provider’s communication channels meet their needs. This is especially important for those with low confidence in managing their finances.
How often does your firm test and review communications with VCs? The FCA's review indicates that consumer testing is a less common action. Firms should regularly test and review their communications with consumers, using feedback and insights to make necessary improvements.
This mixed outcome, though somewhat expected, underscores the ongoing challenges and the necessity for continuous effort in this critical area. While the FCA has confirmed they will not be updating their guidance (which is positive), it is clear that scrutiny of Firms’ treatment of vulnerable customers will not go away anytime soon. A number of the suggested areas for improvement are in relation to the robustness of the governance, oversight and organisational systems and controls in pace. This is a good starting point for any review that takes place. It all comes back to:
Consideration of effort: Ensure you have spent enough time thinking about how far to go in terms of identifying and supporting vulnerable customers.
Rationalisation: Rationalise this in light of products and distribution channels, considering customer characteristics, the frequency and nature of interactions, and what additional help might be required.
Framework design: Make sure the framework has been designed to deliver these outcomes.
Implementation: Establish systems and controls to properly embed the framework in practice, which includes targeted and tailored training.
Monitoring: Test and demonstrate the outcomes being delivered, through relevant MI and QA.
If you need any help reviewing your vulnerability framework please get in touch, and keep an eye out for our gap analysis, which will be published imminently.
