FCA Essentials: Understanding Vulnerable Customers

In a recent publication of the FCA’s Business Plan and Mission, the following statement on understanding vulnerability is central to how decisions are made by the regulator in regard to a firm’s compliance in this area. “Consumers in vulnerable circumstances are more susceptible to harm and generally less able to enhance their interests. It is extremely important that every firm has a sound understanding of what is meant by a vulnerable person, and how that transitions into making sure that employees are trained effectively, with correct policies and procedures put in place.” With that in mind, we’ve written this guide to help you understand how to identify a potentially vulnerable customer and the steps you and your firm can take to help them.

What is meant by a Vulnerable customer?

As defined by the FCA a vulnerable consumer is someone who, “due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.” Most products and services available are designed for the average person and are not necessarily designed to meet the needs of someone who fits that definition. It’s is important to note that not all vulnerability is permanent, and can be temporary. Therefore, understanding what it is that can make a customer vulnerable is key. Once establishing this, identifying types of vulnerability is important as not all of them are easily recognisable. As a firm’s actions can also result in stress that makes a customer vulnerable, which needs to be avoided at all costs.

Why is it important that firms recognise vulnerable customers?

In recent publications, the FCA has placed high importance on protecting vulnerable consumers and prioritising their needs. With the FCA’s definition of vulnerability being extremely broad, and that vulnerability can affect anyone at any point in their lives, it is important that firms cover all aspects of vulnerability. In order to do this firms must demonstrate that they can ensure good outcomes for customers and deliver well-functioning market sets.

What the FCA says about vulnerable customers

This year the FCA confirmed that intrusive supervision would be conducted towards firms in regards to their business models, strategies and product development, placing consumers at the very heart of every decision made within a firm. This intrusive approach is a means to prevent the emergence of new industry ‘scandals’ and ensuring appropriate levels of care are reached. One proposed strategy by the FCA is for businesses to begin “vulnerability mapping” of the company and customer bases in order to gain greater insight and determine if vulnerability is being addressed in the correct way, and the necessary changes are being made. The FCA expects firms to have clear and concise policies and procedures surrounding vulnerable customers that help employees to firstly recognise and understand, followed by the taking of appropriate next steps. It is extremely important to note that having a vulnerable customer should not mean that they are then denied a service or a product, but yet a flexible solution that is right for them.

Next steps

Understanding what is meant by a vulnerable person and why it is important is vital to firms. Not only with regards to the FCA’s regulations, and the announcement of their intrusive approach into how firms will be handling this, but ensuring that all firms cater to their consumers’ needs with care. As the regulator continues to express the development of this area, it’s now more important than ever to make sure your employees understand how to identify a potentially vulnerable customer and the actions that should be taken.

Traineasy offers the course Vulnerable Persons complying with FCA guidelines. The course takes approximately 45 minutes to complete.