On the 23rd February 2021 the Financial Conduct Authority (FCA) issued final guidance on its expectations for businesses regarding the fair treatment of vulnerable customers.
Given the fact that this guidance will apply to a wide range of businesses, we provide an overview of the information contained in the treatment of vulnerable customer guidance, look at why your business needs to be aware of the guidance and how to incorporate it into your business operations.
Refer here for the full FCA finalised guidance relating to vulnerable customers.
What is a vulnerable customer?
The FCA set out their definition of a vulnerable customer as ‘someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.’
They go on to discuss 4 key drivers of vulnerability
- Health – illness or health conditions which impact ability to carry out day to day tasks
- Life eventsg., bereavement, job loss, the breakdown of a relationship
- Resilience – a low ability to cope with financial or emotional shocks
- Capability – this could relate to financial capability – a low capability to understand financial matters or confidence in manging money related matters. Or other areas of capability such as literacy or digital skills
Vulnerability is viewed as a spectrum of risk by the FCA, in that all customers have the risk of becoming vulnerable but that this risk is increased by the presence of the characteristics of vulnerability highlighted above.
It is thought that the COVID-19 pandemic has impacted the numbers of people with characteristics of vulnerability, with many more people at risk of harm because of the effects of the pandemic. This increased prevalence of vulnerability brings to the fore the responsibility of businesses to treat vulnerable customers fairly and ensure good outcomes in the course of doing business.
Why is it important to understand the definition of a vulnerable customer?
The aims of the guidance are to ensure that vulnerable customers can achieve outcomes as good as everyone else in the course of interacting with businesses. As such the FCA will use the guidance to hold firms to account for their treatment of vulnerable customers.
Your business can be asked to demonstrate how your business model, actions and culture ensure the fair treatment of all customers, including vulnerable customers.
Your business therefore needs to have a good understanding of the definition of a vulnerable customer and your responsibilities when it comes to fair treatment of all customers so that you can adjust your business processes and procedures and meet your obligations not only to FCA rules but also to the Equality Act 2010.
Which businesses does the guidance apply to?
The FCA specifically call out that the guidance is relevant to businesses serving retail customers, including some business customers, regardless of the firm’s size or sector.
As the guidance is issued by the FCA, if you run an FCA regulated business it is likely that you will need to take this guidance into consideration within your operations.
What action should your business take if vulnerable customer guidance applies to you?
The guidance issued by the FCA sets out actions businesses should take to both understand the needs of vulnerable customers and to ensure fair treatment. Incorporating the guidance into your business operations should be seen in the wider context of meeting the FCA Principles for Businesses.
The FCA set of 4 key areas that businesses should act in to meet the standards set and ensure good outcomes for vulnerable customers.
We have summarised the 4 areas below, but the full guidance can be found in this FCA infographic
Understand the needs of vulnerable customers
Within both your target market and customer base. You must also consider the types of harm or disadvantage customers may be vulnerable to, and how this might affect the consumer experience and outcomes.
Look at the skills and capability of your staff
Ensure that your staff have the correct skills needed to recognise and respond to characteristics of vulnerability. Do your staff understand the concept of vulnerability and how their role affects the fair treatment of vulnerable customers? Have you incorporated training into your staff induction processes and ongoing training policies? Do you support your staff who deal with vulnerable customers?
Take practical action
Your business should take the necessary steps to respond to customer needs. This could be through areas such product design, flexible customer service provision and communications
Monitoring and Evaluation
This involves continual attention on whether you are meeting the needs of customers with characteristics of vulnerability and make improvements where this is not happening.
As a business it is vital that you uphold your obligations under a range of rules and laws which will govern your business operations to protect your staff and ensure fair treatment of all your customers. Another area it is important not to overlook is that of insurance and having the right cover in place to protect all aspects of your business. If you have any questions about your business insurance don’t hesitate to get in touch with us on 020 8290 9080 or email us at business@anthonyjones.com.
