The Financial Conduct Authority (FCA) recently published guidance clarifying its expectations for firms when it comes the fair treatment of vulnerable customers. It is aiming to drive improvements in the way firms treat vulnerable customers so that these individuals can achieve better outcomes and are treated fairly and appropriately.
People can find themselves vulnerable circumstances at any time – something that has become increasingly evident during the pandemic. Recent FCA research shows that 27.7 million adults in the UK have characteristics of vulnerability such as poor health, limited financial resilience or negative life events. Such factors can greatly reduce people’s ability to make financial decisions and puts them at risk of increased debt as well as misselling and fraud. Economic fraud is also increasing at a rapid rate.
The FCA’s ‘Guidance for firms on the fair treatment of vulnerable customers’ has been widely welcomed especially as it strongly emphases the need for firms to place the treatment of vulnerable customers high on their agenda. However, it is important to note that the guidance still places an onus on a customer to tell providers of their vulnerability or changing circumstances. This can be very time-consuming and distressing for the individuals involved and not always possible.
While advisers are able to spot the most obvious signs of potential vulnerability such as age, they often need support to recognise the more subtle signs. As reported in Financial Reporter, advisers say that recognising vulnerable clients is one of their biggest priorities and just one in ten believe it is easy to identify them, according to research from more2life.
This challenge is not unique, and advisers are certainly not alone in finding identifying vulnerable customers a challenge. It is an ever-increasing issue for the wider financial services industry, including lenders and debt collection agencies as well as service providers such as utility companies.
Very often people are reluctant or don’t have the ability to disclose their vulnerability. It also isn’t that easy to disclose as anyone who has tried waiting on the line to get through to a bank, for example, can testify. And, with greater digitisation, many vulnerable people are just simply excluded. It can also be incredibly painful and distressing on the part of the individual to explain their circumstances over and over again to multiple organisations, and in many cases the same organisations time and time again. It's not a ‘one call and done’ experience.
There has been lots of great work done, and plenty of initiatives launched to help better identify vulnerable customers and put in place the most appropriate processes and support. However, it is only when and if the industry comes together that there will be real change. It isn’t enough for one organisation to put its vulnerability house in order. Vulnerability doesn’t exist in silos.
By coming together with greater collaboration, the sharing of best practice and the data sharing, the industry will be in a much stronger position to help reduce debt, financial problems and harm as well as ensuring that it is able to meet its regulatory obligations.
As a not-for-profit organisation providing the UK’s first central vulnerability database, we provide a place whereby vulnerable customers and their representatives such as those with power of attorney can share information on their circumstances with organisations such as lenders and creditors. The database also advises when a Court of Protection Order is in place and financial services organisations are able to check against the database and share data.
Using our free service, individuals can opt to be pre-declined for financial service applications – proving an extra safety net to potential fraud victims, for example, or to add a ‘referral flag’ to make organisations aware of their circumstances.
Steps to Take
We are urging more financial services organisations, including lenders to access such practical tools that already exist to identify vulnerability. Advisers play a vital role in supporting their customers, and can also encourage lenders and other financial services organisations to take more practical action when it comes to identifying vulnerability. You can’t begin to treat vulnerable people appropriately or extend support to them unless you know who they are.
Here are some steps to take:
• Train and support staff to have a vulnerability mindset so they are better able to listen, spot the signs and provide support,
• Encourage greater data sharing and the use of existing tools to better identify vulnerable customers,
• Make it easier for people to disclose a vulnerability and obtain the support they need – through better signposting to resources and by being open and transparent about the support that is provided,
• Signpost clients to sources of support such as relevant charities and other third party organisations that can support them further,
• Keep learning and improving – understanding vulnerability is key.
As the pandemic rages on, financial services organisations and advisers alike have found themselves under intense scrutiny from regulators, government, the wider public and the media as to how they are treating vulnerable customers. The Financial Ombudsman has reported an increase in complaints from people who borrowed money and then felt the debt was unmanageable, and there is likely to be an extended and painful post-mortem on how firms treated vulnerable customers through the crisis.
Now is the time for firms to take proactive and practical action. It is time to step up together.