The regulator's perspective
There are many causes of vulnerability, and the Financial Conduct Authority (FCA)
Financial Lives Survey (July 2020, updated February 2021) showed that 50% of UK adults display one or more characteristics of being potentially vulnerable.
Protecting the interests of vulnerable consumers is an FCA priority and a key area of focus in their 2021/22 Business Plan.
The (FCA) defines a vulnerable person 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 - vulnerability can come in a range of guises, and can be temporary, sporadic or permanent in nature…"
In February 2021, the FCA published their Finalised Guidance (FG21/1) for regulated firms on the fair treatment of vulnerable consumers.
This sets out how the FCA expects firms should treat vulnerable consumers and builds on their ‘Approach to Consumers’, published in 2018.
It comprises four main sections covering the approach to achieve good outcomes for vulnerable customers and how to comply with the FCA’s Principles for Businesses:
- Understanding the needs of your target market / client base.
- Ensuring staff have the skills and capabilities needed.
- Taking practical action on how to respond to a vulnerable consumer’s needs.
- Monitoring and evaluation.
The Guidance does not aim to produce checklists but to encourage firms to explore their options of how they comply with the principles.
This is the final phase of a consultation process which started in July 2019.
This guidance incorporated feedback from firms, trade bodies and consumer organisations to the first phase of consultation in July 2019.
For example, some responses questioned the distinction between actual vulnerability and potential vulnerability, outlined in GC19/3, and a new group of ‘not vulnerable’. The FCA altered their approach to describe vulnerability as a spectrum of risk.
The FCA found many examples of good practice and firms thinking carefully about their customers and potential vulnerability, but there were also cases where vulnerability is either not considered by firms or exploited for gain.
Many more consumers will now be in vulnerable circumstances since the onset of the coronavirus pandemic. The latest FCA research highlights how anyone can become vulnerable at any time, and how important the provision of a firm’s extra care and support procedures matter more than ever.
GC20/3 set out new best practice guidance to help firms do more to protect vulnerable consumers and ensure that they are receiving positive outcomes.
See the guidance in full here >
This initial consultation publication set out the FCA’s view of what their Principles for Businesses (the Principles) require of firms to treat vulnerable consumers fairly. It followed-up 'Future approach to consumers', published in 2018, which defined their vision for a well-functioning market that works for consumers.
GC19/3 also committed to consult further on guidance for firms on the treatment of vulnerable consumers and comprises three main principles:
- Understanding the needs of vulnerable consumers
- Ensuring staff have the skills and capabilities needed
- Transforming that understanding into taking practical action
The guidance set out a distinction between ‘actually vulnerable’ and ‘potentially vulnerable’ consumers, highlighting that some consumers may not be vulnerable at a point in time, but they’re at greater risk of harm than others. So firms will need to respond appropriately.
GC19/3 didn’t include recommended checklists but encouraged firms to explore their own options of how they could comply with the Principles; recognising that a firm’s policy should reflect its size, markets and the characteristics of its customers.
The above publications build on earlier reports from the FCA, reflecting the importance they attach to the subject of vulnerability:
- The FCA’s Principles for Businesses requires firms to treat their customers fairly, and firms are expected to exercise particular care where consumers are in vulnerable circumstances.
- Occasional Paper 8 – Consumer Vulnerability (OP8), published in 2015, aimed to stimulate debate and interest on consumer vulnerability so that firms could better understand the issue and act appropriately.
- Feedback to the FCA’s 2017 consultation – Our Future Approach to Consumers showed that many firms were uncertain about how to understand the needs of vulnerable consumers and what they needed to do to respond to their needs. Clarity was requested and some respondents asked for clearer guidance under the Principles.
- The result was Approach to Consumers published in 2018. It set out the FCA’s vision for well-functioning markets for consumers, the conditions they require to achieve this and how the FCA will use their powers to protect consumers.