August 2019
By Steven Howard , Head of Mortgage and Lending Intermediaries Compliance Services at SimplyBiz
For a number of years, the FCA has expressed concerns around consumer vulnerability and expect fair treatment of any clients identified and classified as such by the firms that they deal with. Indeed, the protection of this type of consumer is a key priority for the FCA.
The regulator launched its High Cost Credit Review in November 2016 and this resulted in a number of measures that provided protection to the most vulnerable consumers of financial services. Headline results of the review led to interventions around home-collected credit, rent-to-own and buy now pay later offers in a bid to save these customers approximately £200m a year. Firms that operate within the consumer credit market are the most likely to be affected by the remedies within the high cost credit review and this work provided a clear direction for other pieces of FCA work around vulnerability.
This brings me on to the regulators most recent publication in this area GC19/3: Guidance for firms on the fair treatment of vulnerable customers, which is a consultation on proposals for further guidance on vulnerable customers. The main objective of the guidance is to communicate the regulators expectation that “firms do the right thing for vulnerable customers and for this to be deeply embedded in a firm’s culture” and that as per FCA Principles, vulnerable consumers are treated fairly across all financial services sectors.
Whilst this is nothing new for FCA Principles and rules, it does help to formalise expectations for firms. When we consider that a recent survey found that 50% of UK adults display one or more characteristics of being potentially vulnerable (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”), we can appreciate that these consumers can face a greater risk of harm and this harm is likely to have a bigger impact on their lives.
The regulator has identified 4 key drivers of vulnerability:
The most likely members of society to be vulnerable are the over 65’s, the under 24’s, the unemployed and those with no qualifications. Half of adults in problem debt may suffer from mental health issues and people with problem debts are twice as likely to develop depression.
As it is likely that this guidance will be integrated into the FCA Handbook, either within the Principles or within the rules, in its current or slightly amended form, we recommend that firms read the ‘Proposed guidance on firms’ treatment of vulnerable customers’ in Annex 1, in preparation of any changes that may need to made to their operations.
https://www.fca.org.uk/publication/guidance-consultation/gc19-03.pdf
The guidance will be consulted on in 2 stages and the FCA is asking for comments on this, the first stage of the consultation, by 4 October 2019. They will then issue a revised draft for further consultation.
Firms will need to think about what the guidance means for their business and customers, and how they understand and address the needs of vulnerable customers. Whilst many firms have made significant progress in how they treat vulnerable consumers, the FCA warned that “where we find that firms are not doing enough to ensure that consumers are treated fairly, we will take action”. There is a template “Vulnerable Persons Policy” document within the “Conduct of Business” section of the FIBA Business Compliance Hub and so you may wish to get ahead of the game via a review of this document with your own firm in mind.