Financial services defender briefings

Vulnerable customers: Key considerations including regulatory and legal basis

Half of the UK’s adults

Financial Lives Survey in 2017 found that half of the UK’s adults display one or more characteristics of being potentially vulnerable. This is therefore overall a large proportion of all financial services customers. With the COVID-19 pandemic and the economic fall-out this figure may rise.

Customer resilience is also an area closely linked to vulnerability, and with the pandemic there will be more customers that are financially, emotionally and mentally less resilient.

FCA operational objectives

One of the FCA’s three operational objectives set out in the Financial Services and Markets Act 2000 (FSMA) covers securing an appropriate degree of protection for consumers and this lies at the heart of what the regulator is doing. Furthermore, the regulator is also more likely to intervene where it identifies actual or potential harm for vulnerable consumers.

When meeting that operational objective the FCA has to take into account another general principle set out in FSMA that consumers should take responsibility for their choices and decisions. But obviously there can be factors that may limit the ability of vulnerable consumers to take on this responsibility.

General principle

FSMA also provides that the FCA must have regard to the general principle that those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate, having regard, amongst other things, to the capabilities of the consumers in question.

The important point to understand here is that the level of care that is appropriate for vulnerable consumers may be different from what is required for other consumers.

Reputationally, this is not an area that firms want to get wrong.

Principles for Businesses

For firms, the Principles of Businesses are a general statement of the fundamental obligations of firms under the regulatory system. The most relevant Principles underpinning the need for firms to take particular care in the treatment of vulnerable consumers are Principles 2, 3, 6, 7 and 9.

Out of these perhaps the most important is Principle 6. Paying due regard to the interests of customers depends, in part, on the characteristics of the customers concerned.

Principle 3

Firms need to integrate an understanding of the needs of vulnerable customers in how they manage their business.

To meet the requirements under Principle 3 (management and control), this means ensuring that the business has the necessary knowledge and skills to treat vulnerable customers fairly, and has adequate control systems in place to ensure the firm is mitigating the risk of harm to vulnerable customers.

FCA Handbook

In addition to the Principles for Businesses, there are a number of rules in the FCA Handbook that are also applicable which require a firm to act honestly, fairly and professionally in accordance with the best interests of its client.

There is also FCA guidance, the most relevant one being the July 2019 guidance consultation on the fair treatment of vulnerable customers.

Outside FSMA and the FCA Handbook

Moving outside of the regulatory perimeter it’s worth noting there are other relevant requirements that firms need to take into consideration.

For example, there is the Equality Act 2010 and also the EU General Data Protection Regulation (GDPR) and the Data Protection Act 2018 (DPA 2018).

The Appendix to the draft FCA guidance on the fair treatment of vulnerable customers discusses both the GDPR and the DPA 2018.

Technology

There has also been some discussion in the media as to how technology can assist firms when dealing with vulnerable customers.

In particular, speech analytics could be used to pick up on stress signals. This can include cues such as customers not understanding areas that would otherwise be expected to be straightforward, pitch and tone of conversations, and also unexpected clarification and repetition.

Vulnerable customers: Checklist of suggested actions in respect of COVID-19

Vulnerable customer governance

Ensure clear and effective governance arrangements are in place to oversee the delivery of fair outcomes for all customers (particularly those that are more vulnerable) during this challenging time.

Consider management information and reporting to support the delivery of effective oversight of vulnerable customer treatment.

This should include information on the effectiveness of any newly implemented support options, forbearance tools and communications issued to customers. This will help assess whether these are operating as intended or require amending.

Keep governance arrangements under continuous review.

Customer profile and needs

Consider the range of vulnerabilities present within your customer base and how specific needs may be impacted by Covid-19 (e.g. closure of regional branches, increased call waiting times, etc).

Think about how to respond to these needs in order to provide vulnerable customers with appropriate access to services and ensure they continue to be treated fairly.

Consider customers’ physical safety. For example, directing customers to channels they can access safely without the need for face-to-face physical contact unless strictly necessary.

Access to services

Based on expected customer needs, consider how best to respond to these across the various customer channels you operate through.

It may be appropriate from a customer and staff safety perspective to operate reduced hours if you operate a branch network or to modify the way in which customers can access these services safely (e.g. enforcing the “two metre rule”, provision of safety screens between customers and branch staff, etc).

Where decisions are taken to reduce access to particular channels, communicate this to customers and promote appropriate alternative ways customers can interact with you.

Resource allocation & resilience

Forecast the likely volume of customer interactions across your various channels (e.g. branch, telephony, online, mobile apps, etc).

Ensure person-to-person channels (e.g. call centres) are sufficiently resourced with appropriately trained staff to handle an increased volume of customer enquiries.

Ensure online channels are sufficiently resilient to handle increased volumes of traffic.

Where there are likely to be longer than normal waiting times to access any channels make customers aware through clear communications.

Customer support/forbearance

Consider the range options your customers are likely to need at this time, for example:

• Waiving early exit penalties for customers wishing to access fixed term savings;
• Offering forbearance (e.g. payment holidays) for customers with mortgages / loans outstanding;
• Ensuring sufficient physical cash is available at ATMs; and
• Treating customers fairly at the point of purchase, renewal and claim for insurance products.

Over time, keep these areas under review, and bear in mind whether continuing forbearance is going to be in a customer’s best interests.

Communicate clearly and regularly

Ensure you communicate to your customers clearly and regularly about how you are responding to Covid-19 and what this means for them through all relevant communication channels. This could be a dedicated webpage on your website, a short pre-recorded message on telephone lines or posters in branches.

Consider clearly setting and managing customer expectations. For example, if waiting times for certain channels are longer than normal, make customers aware of this. You may wish to also highlight alternative channels customers can use to get in contact with you.

Assess impacts of interventions

It is important to understand the impact any changes you have made to your services have had on your customer base whether these be positive, negative or indifferent.

This should be monitored and tracked over time to ensure that they are supporting customers as intended and reported to relevant governance for a.

Keep these areas under review and feedback “lessons learnt” throughout the organisation so you can learn from your successes and areas you could have dealt with better.

Gather customer feedback and act on it

Gathering feedback from your customers on any changes to your service is key to understanding how effective they have been in practice.

The following can be useful sources of information in this regard (a non-exhaustive list):

• Customer surveys;
• Customer complaints (incl. via social media); and
• Feedback from staff on customer interactions.

It is important feedback is acted on to refine and improve services during this challenging time.