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Addressing Implementation: Messages from the FCA Workshop on its approach to consumers

The FCA held a workshop last week on Customers in Vulnerable Circumstances which focused on its approach to ensuring inclusive and fair treatment of vulnerable consumers in the financial services industry. Much of the focus draws from its Approach to Consumers published in July 2018 (see our previous FISion blog here).

The FCA said?

The FCA’s statistics suggest that 1 in 4 of us will experience a mental health issue at some point in our lives and half the population will suffer a mental health issue in one way of another in our lifetime. Against this backdrop, Nick Stace (Non-Executive Director, FCA) emphasised the need for firms within the industry to demonstrate that guidelines and policies relating to vulnerable consumers are implemented effectively with their impact and the outcomes measured. Christopher Woolard (Executive Director of Strategy and Competition, FCA) stressed that firms which fail to do so could face FCA intervention. There have already been significant challenges determining how to define and treat vulnerability within Financial Services but the FCA are proposing to introduce minimum standards with which firms will need to be aligned.

In the meantime, firms should consider the following;

  • analysing data to better understand consumer behaviours to enable early intervention;
  • identifying vulnerable consumers and taking appropriate and proportionate action;
  • designing products, services and practices which support vulnerable consumers;
  • making communications (e.g. terms and conditions, product description) simple and easy to understand; and
  • establishing more inclusive access to products and services as opposed to, for example, online access only products which may exclude vulnerable consumers.

The challenges for firms?

While this current focus from the FCA is welcome and will encourage and establish a more inclusive environment for vulnerable customers, there are some key implementation challenges for firms.

  • Consideration of the potential conflicts between recording and maintaining sensitive customer information versus meeting strict GDPR requirements.
  • The “80/20” rule has been effective in the past in determining policies and processes that work effectively the majority of the time with robust processes for managing exceptions. However, do firms now need to consider designing and implementing policies, processes, products and services that provide the flexibility to accommodate customers with the greatest needs, rather than assuming them (the “20”) to be exceptions?
  • Vulnerable circumstances can impact people for differing periods of time given causes can include bereavement, divorce, job loss, long or short term illness and so on. With this in mind firms will need to consider the types of scenarios they need to make provision for within their operating environments.
  • Will existing terms and conditions need to be reviewed in light of the need for flexibility to accommodate the changing needs of customers in vulnerable circumstances?
  • Does reporting within firms provide the necessary clarity and transparency for Senior Managers to take action where required? For example do firms analyse data to determine whether causes for declined claims and rejected complaints could be indicative of a need to revise policies and approach to dealing with customers in vulnerable circumstances?

There is no doubt more to come from the FCA on the practical impact of its Approach to Consumers, including as part of its discussion paper on a new duty of care (DP18/5). However, it is clear that the FCA expects firms to act now.