Important clarification from the FCA on customer vulnerability

The FCA has made some clarifications on its Consumer Duty regulations, regarding the identification of customers with vulnerabilities. On 24 May 2024, the FCA updated its guidance page: Consumer Duty – information for firms

The FCA has updated its guidance with some important points:

• “Under the Duty we expect firms to actively encourage customers to share information about their needs or circumstances, where relevant.”

• “Firms should try to recognise the needs of consumers, whatever channel they use.”

In practical terms, what does this mean?

Training isn’t enough

The regulations often refer to front-line staff and to the training of front-line staff.  While there is nothing wrong with this, it has created the perception within some firms that training alone can lead to compliance, this has led many firms to only capture vulnerability information in a reactive way. For example, some firms only capture information when consumers volunteer it –or in some way indicate it in way which prompts a conversation about vulnerability. It also gave the impression that firms only need to consider verbal communication channels and can ignore digital, or other, channels of communications.

Analytics isn't enough

Promotions from voice and text analytics companies claiming to ‘solve’ vulnerability by using their systems has further reinforced this misunderstanding.

The challenge with these approaches is that consumers are typically poor at volunteering information on vulnerability. It’s just not something that automatically comes up. Additionally, although trained, many staff only record a vulnerability if it affects how they are dealing with the consumer at that time – and tend to only record severe vulnerabilities. Also, where firms have reported that they have trained the staff, they have found it difficult to get staff to actively engage with topic. The topic doesn’t stick. This is not surprising – this is a complex area and a new skill for most people.

Reactive strategies under-report consumer vulnerabilities

The result is that many firms are reporting that their proportion of consumers with vulnerabilities in single figures. This is massively problematic –we know that the proportion of vulnerable customers is around the 50% mark for the general population; we also know that everyone is vulnerable at some point. Indeed, our work shows that, when properly surveyed, the lowest proportion vulnerable customers is around 30% mark – so anyone with percentages lower than this is almost certainly not identifying vulnerability adequately.

The FCA’s clarification: proactive not reactive

What this clarification from the FCA means is that firms need to be proactive in engaging with customers if they are to establish their vulnerability characteristics.

The FCA’s clarification: knowing the percentage isn’t enough

But – even if you know that around 50% of customers are vulnerable, you still don’t know which ones. The only practical way to find out exactly who is vulnerable, and in which ways, is to engage with all customers. Then you know who that 50% is, and why. Which means not only can you report on it, you can do something about it.

If you’d see some practical, proven ways to identify customers with vulnerabilities, or review your own progress, then let’s arrange a call to discuss?

For larger firms, we offer a free workshop – to work through the details in the context of our business.