For those who are looking for instructions from the FCA, there are clauses within the regulations which support both views. Handbook PRIN 2A.7.4 states:
“In relation to the needs and characteristics of retail customers, a firm should, among other things: …. (4) assist frontline staff to understand how to actively identify information that could indicate vulnerability and, where relevant, seek information from retail customers with characteristics of vulnerability that will allow staff to respond to their needs.”
Yet, in contrast, in the guidance document, clause 6.29 states:
“We do not expect firms to explore customers’ circumstances exhaustively or to identify every customer with characteristics of vulnerability. We do, however, expect firms to support their staff to identify signs of vulnerability, for instance through training and resources, and to set up systems and processes that enable customers to disclose their needs, if they choose…”
While some may bemoan the inconsistency, we think that focusing too hard on the wording misses the point – we really need to look at the bigger picture. The overarching principle of Consumer Duty is to promote good consumer outcomes, to measure those outcomes, and to evidence that the vulnerable do not receive worse outcomes than the resilient. Rather than specify how this is undertaken, Consumer Duty sets out the principles – and then gives firms leeway on how to implement them. However, the regulation is clear that companies must measure, spot and monitor, and take appropriate action, when they find unfavourable outcomes for consumers.
The challenge is how this information is collated at firm level in order to provide robust reports that vulnerable consumers are not receiving worse outcomes than the resilient. This is not easy.
A recent report on the financial wellbeing of disabled people in the UK highlighted that disabled people receive worse financial outcomes than resilient consumers. The report particularly highlights a list of those conditions where affected consumers receive particularly poor outcomes, including learning difficulties, mental health conditions, multiple health conditions, disabilities that have been acquired suddenly, chronic fatigue, non-visible conditions and memory-related conditions. Notably, most of these conditions are highly unlikely to be detected by a firm relying on a simple reactive approach; nor would they be volunteered, unsolicited, by customers or even known by the consumer themselves.
Since using a reactive approach will not identify these conditions, it is unlikely firms can possibly have the required data to report on them when it comes to reporting outcomes. So, what should firms do? Can they rely on clause 6.29 above and only collect information reactively? Well, yes – but only if they are meeting the wider firm-level monitoring requirements.
We propose that firms can use a reactive approach if they meet all these criteria:
- Have a robust process for assessing and evidencing consumer vulnerability.
- Have a robust methodology to identify vulnerabilities that are not typically volunteered or easily visible.
- Fully understand the cohorts of vulnerable consumers across the target market.
- Have robust evidence of consumer characteristics and can demonstrate comparisons to applicable benchmarks.
- Can evidence that cohorts of vulnerable consumers experience no worse outcomes than resilience customers.
In the recent ‘Dear CEO’ letters, the FCA refers to ‘weak identification of vulnerable customers’. What does this mean – and how can it be quantified? Well, from multiple sources, including the FCA’s Financial Lives survey, we know the mean average of consumers having some sort of vulnerability is around 50%. This is an easy metric to use as an assessment benchmark – and if firms are not doing this, then they should review their assessment method – period. Our experience shows us that those firms which use only a reactive approach report figures far less than this – which makes their results highly questionable. You can’t just say that “half of our customers are vulnerable” because the regulator will then ask: “which half, and in what ways?”
Reporting and monitoring are required at firm level – the challenge is how you collate data at firm level if you don’t have data at customer level to start with. It’s understandable that firms feel that ‘having to go back to each and every customer’ will be an expensive bind, but waiting for the data to somehow present itself isn’t an answer. The reality is that is doesn’t have to be expensive or onerous – there are automated solutions to help.
MARS, the MorganAsh Resilience System, was built from the ground up to work in this way – to get the data from the source, provide tools to manage that data – and deliver extensive reporting. It automates assessments, making them quick, low-cost and objective. Consumers can be easily managed, and vulnerabilities tracked (because most change over time). Management information and reporting is just a click away. MorganAsh is working with Investor in Customers, combining outcome reporting with vulnerability reporting – to specifically answer if any vulnerable cohorts are receiving worse outcomes. It’s cost effective even when just considering the assessment – but because the data is always there, it virtually obliterates costs related to reporting.
As it does with many other challenges, technology can provide the scale, efficiency, and low cost to tackle the ‘reporting at firm level’ challenge with ease – enabling an easy way to move from reactive assessments to proactive ones.