The FCA recently circulated a comprehensive 40-question survey to advice firms, signalling an increasingly sharpened focus on ensuring the fair treatment of customers in vulnerable circumstances.
The survey forms part of a wider review from the regulator examining whether firms understand consumer needs and if their staff possess the necessary skills. It will also assess product and service design, communications and customer service to determine if these elements support the fair treatment of vulnerable customers. The results of the review will be published later this year.
This follows the disappointment expressed by the FCA in December 2023 in investment firms and efforts made by some to address the needs of vulnerable customers. Its own evidence suggests vulnerability ranks as a low priority, with some companies failing to consider it at all. Worryingly, findings from its Wealth Data survey showed that half of portfolio managers and over two-thirds of stockbrokers identified no vulnerable customers whatsoever.
The FCA has long been an advocate for the fair treatment of all customers, particularly those in vulnerable situations. Vulnerability can arise from a variety of factors including age, disability, mental health issues or significant life events such as bereavement or job loss. The regulator has now said it will take a broader approach in examining how firms treat customers in vulnerable circumstances, including the elderly.
Its recent survey aims to gather detailed information on how advice firms are identifying and supporting customers in vulnerable circumstances. They have identified key areas of focus as:
- The actions firms take to understand the nature and scale of vulnerability in their target customer market, and how these impact customers’ needs.
- The actions firms take to ensure their staff have the necessary skills and capability to recognise and respond to the needs of customers in vulnerable circumstances.
- The actions firms take to respond to the needs of customers in vulnerable circumstances through product and service design, customer service and communications.
- The actions firms take to embed the needs of customers in vulnerable circumstances into their culture.
- How firms monitor the outcomes for consumers in vulnerable circumstances.
- The challenges you have experienced in taking action to treat customers in vulnerable circumstances fairly.
For advice firms, this exercise presents both a challenge and an opportunity. Firms must critically evaluate their current practices and be prepared to prove their commitment to treating vulnerable customers fairly.
This may require:
- Investment in training: Ensuring that staff at all levels are equipped to identify and support vulnerable customers.
- Review of policies: Conducting thorough reviews of existing policies and procedures, making necessary adjustments to align with the FCA's expectations.
- Enhanced communication: Developing clear and empathetic communication strategies that meet the needs of vulnerable customers.
The feedback collected from the survey will shape the FCA's future regulatory approach and may lead to the introduction of new guidelines or rules designed to enhance consumer protection. Advice firms should expect ongoing scrutiny in this area and take proactive steps to align their processes with the FCA's expectations.
Where the FCA does not see change, it is possible it will fully exercise its authority to enforce changes. If it believes vulnerable consumers have suffered harm, those individuals will be identified and compensated. Firms could find themselves under enhanced supervision or facing enforcement action if the breaches are severe and persistent.
The FCA can also pause a firm's activities, such as taking on new customers, if it finds processes and governance are insufficiently robust. Most firms, however, are likely to be given the opportunity to improve.
The FCA's recent survey is a significant step towards ensuring that the financial advice sector stays inclusive and fair, particularly for those in vulnerable circumstances. As the industry evolves, the protection of vulnerable customers will remain a key priority for the FCA.
Written by The Lang Cat
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