Vulnerable customers: Stronger imperatives for action in 2021

04 February 2021

by Tom Boydell Manager, PwC UK

Email +44 (0)7483 399332

by Tessa Norman Manager, PwC UK

Email +44 (0)7753 812594

The impact of the COVID-19 pandemic has led to a significant increase in both the incidence and complexity of consumer vulnerabilities, pushing a long-standing area of focus even higher up the regulatory agenda.

Drops in income have become commonplace (FCA research released in October 2020 showed 31% of adults have experienced a decrease in income during the pandemic), and firms have had to implement various iterations of FCA guidance to support customers who’ve experienced financial difficulties as a result of the pandemic. So if 2020 was the year vulnerable customers became a more mainstream issue, then 2021 looks set to be the year of stronger imperatives for firms to take broader actions to treat vulnerable customers fairly.

The economic backdrop means many consumers will continue to experience financial hardship this year, while publication of the FCA’s final guidance on the fair treatment of vulnerable customers means regulatory scrutiny of firms’ practices will intensify. The final guidance is due this quarter, and is likely to come into force immediately. It will require firms to take action to ensure they are meeting regulatory expectations regarding how they identify, monitor and treat vulnerable customers.

The areas where firms need to take particular action include knowing their customer base, empowering staff, deploying tech-enabled identification and monitoring, and effecting cultural change (you can read more about these areas for action in our Vulnerable Customers: translating expectations into actions report).

The FCA is also due to consult in Q1 on options for strengthening firms’ duty of care to consumers. The consultation is expected to consider the benefits and drawbacks of amending the FCA’s Principles for Business and associated guidance or could potentially introduce a formal legal duty, although this is unlikely. These proposed measures, combined with the vulnerable customers final guidance, will create an even greater regulatory imperative for firms to demonstrate that achieving fair outcomes for all customers is at the heart of their business and culture.

Firms will also need to contend with the migration away from the FCA’s temporary COVID-19 guidance (introduced over 2020). As the FCA’s various support measures come to an end during 2021, firms need to focus on tailored customer support and forbearance for those who remain vulnerable. Firms must take personal circumstances into account when delivering this support and, unlike with the payment holiday roll-out, blanket approaches are discouraged. This presents a number of challenges for firms, particularly in how to communicate decisions, step back from exceptional forbearance measures and manage any repossessions, given many customers have become more accustomed to, or even reliant upon, the support offered during 2020.

Many firms have made good progress on treating vulnerable customers fairly in recent years, but they have had to do so under a degree of regulatory ambiguity. Publication of the FCA’s final guidance should bring clarity to the regulator’s expectations under Principle 6, which inevitably means firms have fewer reasons for not taking action. As 2021 progresses, it will be interesting to see how firms finesse their approaches to vulnerable customers and the extent to which the FCA takes action to enforce its guidance and expectations.

by Tom Boydell Manager, PwC UK

Email +44 (0)7483 399332

by Tessa Norman Manager, PwC UK

Email +44 (0)7753 812594