Vulnerable customers: why resilience still matters
24 July 2018
Back in November last year, the FCA proposed a new approach to vulnerable customers. In its Approach to Consumers consultation document, it introduced the concept of ‘low resilience’ (low capacity to absorb financial shocks) and consulted on a new definition of vulnerable customers based on the concepts of resilience and capability rather than specifically customer circumstances. As we discussed in our previous blog, these proposals would have prompted firms to revisit their policies and processes to ensure they adequately factor in the concepts of financial capability and resilience in the way they define and treat vulnerable customers.
But the FCA’s final Approach to Consumers document, published this week, contained something of a surprise. The regulator has decided to keep its original definition of vulnerable customers, after a number of firms expressed concerns that they have already put the existing definition into practice, and the revised wording could risk narrowing the definition.
It means the FCA will continue to define vulnerable customers as ‘those who are especially susceptible to harm because of their circumstances’ (as set out in its 2015 Occasional Paper No. 8).
So does this mean the regulator is no longer concerned with consumers who have low resilience, and firms can carry on as they are? No, but the definition staying as it is means there’s a risk that firms could think so, and potentially deprioritise further development work around identifying and treating vulnerable customers.
Make no mistake – this is still a priority area for the FCA. In fact, the final Approach to Consumers document reiterates the FCA’s commitment to prioritising the most vulnerable and least resilient consumers in its work, as promised in its April 2017 Mission. This means it’s more likely to intervene in sectors where a high proportion of customers have low resilience, such as consumer credit.
The FCA has also expanded the risk factors for vulnerability that it identified in its Occasional Paper No. 8. That paper focused on risk factors associated with health, capability and life events, whereas the FCA has now added resilience to this list. It is clear in the final Approach to Consumers document that the FCA expects firms to pay attention to indicators of vulnerability and have policies in place to deal with consumers who may be at greater risk of harm.
So bringing all this together - the FCA evidently expects firms to take financial resilience into account in the way they identify and treat vulnerable customers – even if resilience is not part of its formal definition of vulnerability.
The FCA also announced its intention to consult early next year on guidance for firms on how to identify and treat vulnerable customers - another indication that this is still an area of concern for the FCA. This will be a good opportunity for the regulator to clarify its expectations – and hopefully clear up any potential confusion that may have inadvertently been caused by its change of heart over the definition of vulnerable customers.
In the meantime, firms would be well advised to look at how effective they are at picking up the signs of vulnerability (spanning health, resilience, capability and life events) – and how well they support those consumers they identify as being at risk.