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Vulnerable clients, the cost of living crisis and the new Consumer Duty: an update from the FCA

Updated: Sep 22, 2023

By now, I think we are all aware of the importance of checking with our clients for signs of financial vulnerability, but did you know that last month the FCA sent a Dear CEO Letter to over 3,600 CEO’s telling them they had to have robust processes and procedures to identify vulnerable circumstances ‘as soon as possible’ and ahead of the new Consumer Duty Regulation? Not only that they also issued an update on the fair treatment of vulnerable customers, emphasising the same points.

It's quite unusual for the FCA to use such immediate timeframes, but against the backdrop of the cost of living crisis (the FCA estimate nearly one in 3 adults are suffering low financial resilience), you can see why its swiftly risen to the top of the regulators agenda. It's also important to bear in mind this message is not just for CEO’s of larger FS organisations, but sets the expectation for all firms of all sizes.

So what’s changed?

No one can fail to realise that the cost of living crisis will have a direct impact on everyone, irrespective of their ‘financial worth’. Yes, for some (too many) it will be more acute, trying to ensure money coming in can cover even the basics (the number of families having to choose between food and heating is a whole other vulnerability conversation and one we shouldn’t need to have in 2022 and beyond), but even for the more affluent, there is still likely to be increases in resilience based vulnerabilities. As Tim [Farmer] is constantly reminding me, financial resilience has nothing to do with how much money you have, but how you cope with changes to your wealth and finances.

It is clear that the current economic circumstances are sharply refocussing the minds of the regulators, triggering them to rush out new guidance on “Ensuring the fair treatment of customers in vulnerable circumstances“ and writing to 3,500 lenders asking them to act “now” (June 2022)”.

Reading this new guidance there are 3 “tell tales” of the significant importance the Vulnerability Agenda will have on the Consumer Duty:

  • “Firms should develop systems and procedures to capture such [vulnerability] information as soon as possible.”

  • “Where firms fail to meet their obligations to treat customers fairly, we will take further action. We have already engaged with firms that aren’t meeting their obligations and have agreed remedial steps.”

  • “Firms should also ensure that their strategy for embedding the fair treatment of customers in vulnerable circumstances cuts across all business areas – and is championed by senior leaders. “

The Dear CEO letter and the update to the guidance also highlight some areas that are falling short of expectations, namely the creation and monitoring of management information and the levels of executive buy-in.

We have already covered at length in some of our other articles the challenges in recording cognitive based vulnerabilities, but getting this right sits at the heart of building sufficient data sets that can underpin Vulnerability MI. As many of you will know, this is also an area we have spent a lot of thinking and acting on, aided as part of the FCA Innovation Hub Program which we have the benefit of being part of. This does lead on to the importance of having a clinical and psychometric approach to recording vulnerability, but that’s likely to be the topic of our next blog.

So what should firms be doing...and when?

When regulators start to push sections of policies before they have been fully consulted upon, you can trust the massive impact they will have as sure as your shadow will follow you. It is clear they are expecting firms to do more ‘as soon as possible’, ahead of New Consumer Duty deadlines.

In our latest article in IFA Magazine we set out a framework that should be adopted to identify and support vulnerable customers, following a three step process: Identify, Link and Support. I was also delighted that Robin Melley, Director of the Vulnerability Taskforce, gave our approach a ringing endorsement on LinkedIn.

So when should firms act? The answer to that is clear: right now! And as ever, we are here to support firms who want to embed a process that meets these new expectations.

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