The FCA’s recent Vulnerability Review aimed to review firms’ treatment of customers in vulnerable circumstances.
Jonathan Barrett, CEO of Duty of Care Assessment firm, Comentis shares some of his key takeaways from the outputs and highlights what firms need to do next to deliver on their Consumer Duty requirements.
Speaking at the regulator’s The Vulnerability Review: Findings and next steps event the FCA director of consumer finance, Alison Walters, said while there had been good progress, there was still work to be done.
She also alluded to sanctions if firms failed to act, stating: “But of course, as you would expect, when we see poor outcomes, persistent poor outcomes, we can take robust action and we will.”
It’s clear that the stakes are high here, and that the regulator is finally moving from carrot to stick when it comes to the treatment of vulnerable customers.
The FCA lead its outreach with some consumer research – with the headline data centring on how just 4 in 10 vulnerable customers said they have disclosed their needs to their financial services provider. We would argue that this is far from what is reflected in reality (our data, from 175,000 real time assessments shows the figure to be much lower indeed). And not only this, but it seems like a somewhat misleading headline from the FCA – after all, the onus should be on the firms themselves to identify vulnerability, and not the customer.
Because bluntly, relying on customers to be open about a potential vulnerability (i.e., self-reporting) simply won’t work.
But why? Well to start with there is still a very real stigma and sense of shame surrounding the prospect of being vulnerable. I think we need to be realistic too. After all it’s entirely possible that the customer themselves might not even be aware that they’re at risk from a vulnerability. As such, expecting a client to tell a financial services firm that they are vulnerable or for a finance professional to try and ‘spot the signs’ themselves is far from a suitable solution – and certainly won’t satisfy the regulator, if and when, they do bring out the stick.
But the thing is – and perhaps what seemed to be missing in the FCA communications – is that it doesn’t matter what a firm does around vulnerability, whether they put in place vulnerability training for employees, improve policies or dedicate more procedures to help their vulnerable clients, without the right identification process in place at the outset, vulnerable customers will still be missed.
Identification is key. It’s as simple as that.
And the best way to achieve identification is through data. Good, robust data.
A systematic process for screening all clients, with appropriate accommodations for the needs of those at risk is fundamental. By combining clinical expertise with hard data, through a digital assessment, finance professionals can remove bias and subjectivity from the process, ensure consistency across their whole client base and be reassured that their systems will adequately meet the scrutiny of regulatory requirements.
I would urge firms to work on getting identification right. Ultimately firms can only deliver the right outcomes if they can understand the vulnerability support requirements of every client, even if they don’t have any. Firms can do this by putting tools in place that systematically check every client for signs they may be at risk. If they can get this bit sorted at the start, the rest will flow from there. The good outcomes will come, and the stick won’t.
