Fresh guidance to help firms protect vulnerable customers has been published by the Financial Conduct Authority (FCA) in its latest consultation paper
The guidance follows the regulator's Financial Lives survey, which found that almost half of UK adults (24.1m people) display one or more vulnerable characteristics.
They are people who, due to personal circumstances, are especially susceptible to harm, particularly when a firm does not act with appropriate levels of care. Such characteristics may be related to health, capability, resilience or be impacted by a life event.
The watchdog also emphasised the impact of coronavirus on vulnerable customers, highlighting the fact the pandemic will have "significantly" increased the number and severity of issues affecting consumers, particularly for those who have already shown signs of vulnerability.
The guidance is split into four parts: understanding the needs of vulnerable customers; skills and capability of staff; taking practical action; and monitoring and evaluation.
The below graph from the FCA shows how firms should use the guidance and how the four main sections should interact with each other.
Source FCA
The updated proposed guidance for firms can be found at Annex 4 of this FCA paper from page 59 onwards.
Former FCA deputy chief risk offer and Huntswood head of regulatory risk and assurance Paul Dyer said: "The difficulty with vulnerability is that it is a fluid concept, with a variety of causes that can change rapidly. These guidelines will provide some key insights into how firms should be adopting more proactive measures in their identification and fair treatment of those consumers experiencing vulnerability, some for the first time.
He added: "To ensure the consistency required by the FCA, firms should also be considering how to align their treatment of consumers across distribution and advice channels. Joining up data points across channels can provide firms with a more holistic view of each customer, allowing for improved identification of vulnerability and better outcomes for those experiencing it."
FCA interim chief executive Christopher Woolard said: "Today's guidance sets out what firms should do to ensure vulnerable consumers are being treated fairly. We know many more customers will be struggling with their finances as a result of the impact of coronavirus. Supporting vulnerable consumers is a key focus for the FCA, and the coronavirus crisis has only highlighted its importance.
"While many firms do excellent work to support their vulnerable customers, we will not hesitate to step in where others do not."
Protection underwriting
Andrew Wilkinson, Moneysworth director said that the FCA guidance "sounds like a real step in the right direction because I think this document challenges all firms to consider the effects on vulnerable customers of its actions".
He said: "I think this document may well act as a catalyst for important and fundamental change in terms of the underwriting of protection business. Quite timely considering the amount of harm being caused to those vulnerable people currently unable to obtain terms due to current underwriting restrictions, and also those who for a long time have been excluded from being able to obtain income protection (IP) cover on a class basis due to their underlying long term health conditions, making them even more vulnerable. Great to see The Equality Act referred to as well as signposting and the role of specialist advisers."
Wilkinson urged insurers to take notice of the FCA document, adding that he hoped it would bring about meaningful change.
