Elizabeth George, Associate in the Financial Regulation Group
The FCA’s finalised guidance for firms on the fair treatment of vulnerable customers was published in February 2021 (the ‘Guidance’), further expanding on the standards set out by the FCA's Principles.
The general direction of travel is clear, looking at various publications from the FCA over the past few years—the FCA has become increasingly interested in culture at regulated firms. A clear, and unique, evolution in this saga was the FCA’s publication in March 2020 of an anthology, of sorts, of essays from leaders in financial services, behavioural scientists and other experts. Unusually, the FCA was not seeking a response from regulated firms, but simply hoping to start a discussion. One of the essays by Dr Anthony Gandy addressed lending and culture—focusing purpose on deliverable technical and cultural change. He explains that setting a purpose such as ‘To be Fair to All’ will provide an impetus to build structures which can deliver on that purpose.
The regulator has provided such an impetus in the Guidance. The FCA outlines a few general actions, such as that firms should ensure that staff have the necessary skills and capability to respond to a range of characteristics of vulnerability. The focus, however, is on discussions that firms should hold internally to identify and handle vulnerable consumers in their target market or customer base: no one size will fit all because the characteristics of vulnerability are likely to be complex and variable. For this reason, it would be difficult and probably counter-productive for the FCA to be prescriptive in this area, and instead the regulator’s intent seems to be that firms should nurture a culture in which identifying vulnerability and giving fair treatment to vulnerable customers becomes second nature. Nevertheless, helpfully for firms, the FCA have provided examples of the characteristics of vulnerable customers within a grid outlining the four drivers of vulnerability (health, life events, resilience and capability). This is a useful matrix on which firms can at least base their initial discussions.
Using the ‘Treating Customers Fairly’ Principle as a base, and the examples and actions in the Guidance as building blocks, the FCA’s expectation is that regulated firms will be able to create the systems needed to develop and maintain an appropriate culture which in turn can operate to protect vulnerable customers. To this end, it would seem prudent for firms to document the steps they are taking to reflect the Guidance.
