In a recent speech marking one year since the implementation of the consumer duty, the Financial Conduct Authority's Sheldon Mills emphasised the positive strides authorised financial services firms have made towards improving consumer outcomes.
Mills, executive director of consumers and competition at the FCA, highlighted the outcomes-based nature of the duty, which supports competitiveness and growth while placing a positive obligation on authorised FS firms to deliver good outcomes for retail customers. The implementation of the Consumer Duty has, understandably, brought significant scrutiny to how authorised financial services firms treat their customers, particularly the most vulnerable.
Despite the new regulations, a report from Smart Money People indicates that 84 per cent of consumers have noticed no improvement in how financial providers treat them.
Grappling with vulnerability
As the first deadline for the annual board report passed at the end of July, firms must now grapple with their responsibilities towards vulnerable customers and demonstrate their commitment to the principles of the consumer duty.
A common misconception is that people with assets are not vulnerable.
The FCA has reported that nearly half (49 per cent) of portfolio managers and more than two-thirds (69 per cent) of stockbrokers from the FCA’s wealth data survey claimed they had no vulnerable customers in their client base.
This is unlikely to be accurate because, according to the FCA, 50 per cent of people will be considered vulnerable at some point in their lifetime.
Vulnerability is not solely tied to financial status. The FCA's definition of vulnerability refers to "customers who, due to their personal circumstances, are especially susceptible to harm".
For instance, a wealthy person can still be vulnerable due to health issues, disabilities, or personal circumstances. Conversely, a person who is late in making repayments is not always vulnerable.
Vulnerability is broader and encompasses various characteristics that may hinder someone's ability to access financial services or achieve good outcomes. Vulnerabilities may include poor health, limited understanding of financial matters, digital literacy challenges, or significant life events such as job loss or bereavement.
It is no longer sufficient to wait for a customer to disclose a vulnerability and act accordingly. Firms need to be proactive and deliver services that anticipate the needs of vulnerable customers.
This means going beyond surface-level assessments to develop robust mechanisms that identify and support vulnerable customers effectively.
A good starting point for authorised firms is to consider their existing client base and what types of vulnerability are most likely to occur in that client base.
While it is too early to deem this the Achilles heel of consumer duty compliance, it is a critical area where firms must show tangible action at the highest levels in the organisation to avoid regulatory scrutiny.
The FCA has praised firms who are proactive and anticipate the needs of vulnerable customers. This can take the form of involving customers in the product and service development process through focus groups with customers with lived experience of vulnerability, as well as engagement with relevant charities.
