On 15th March 2024, the FCA announced plans for a wide-ranging review into the actions firms are taking to identify and respond to the needs of vulnerable customers.

The long-awaited review, which was first outlined in 2017, is expected to go further than the originally planned work on age-related issues to look more broadly into firms’ treatment of all customers in vulnerable circumstances.

It will also evaluate whether customers showing signs of vulnerability are receiving the same quality of outcomes as other consumers.

The FCA will be applying a holistic lens to the research, assessing a variety of factors across the customer journey, including:

• Firms’ understanding of consumer needs
• The skills and capability of staff
• Product and service design
• Communications and customer service – and whether these support the fair treatment of customers in vulnerable circumstances

The regulator had previously pledged to carry out investigative work in this area in February 2021 as part of the feedback statement within its guidance for firms on the fair treatment of vulnerable customers.

The initiative also ties into the ongoing rollout of the FCA’s Consumer Duty that aims to establish a customer-centric environment within financial services and encourage firms to take bold measures to help customers achieve their individual financial goals.

The regulator’s findings from the review are currently expected to be published by the end of 2024.

Consumer Duty and addressing vulnerability

The news of a full-scale review follows a recent Dear CEO letter to wealth management businesses, in which the regulator urged firms to take vulnerability issues more seriously.

Even more concerning is the FCA highlighted that a high proportion of firms were still either making the unlikely claim of having no vulnerable customers, or otherwise focusing too narrowly on vulnerability characteristics such as age as the primary indicator of risk.

The feedback also raised that many firms are not thinking about vulnerability as a spectrum of risk, or considering the much wider range of vulnerability characteristics an individual may face in their lifetime.

These types of blindspots, as well as firms underestimating the importance of engaging with vulnerability concerns in general, have been recurring issues we’ve seen during our Consumer Duty implementation support work.

We’ve also noted instances of firms simply ‘ticking the box’ to identify vulnerability among their customer base without following through with any meaningful adjustments to their engagement with the individual. In other words, they recognise vulnerability but don’t make material changes to improve their support for the customers in question.

Tackling vulnerability requires meaningful, data-driven insights

In line with the Consumer Duty’s more stringent monitoring requirements, the FCA is now expecting firms to leverage MI insights to proactively predict vulnerability issues and prevent harm from occurring – rather than simply rectifying issues after they’ve already happened. However, in our interactions with clients, we’re not yet seeing firms using the data at their disposal in this manner.

What we are seeing is firms producing significant amounts of data and KPIs – but not evaluating what such information is actually telling them about potential harm to customers.

What’s more, firms aren’t testing and re-evaluating their customer touchpoints regularly enough to see how they can engage with vulnerable customers more effectively.

And, in most cases, they aren’t actively requesting feedback on their communications or seeking an independent, non-financial services view of how their customer information and marketing materials are understood by retail customers.

Get in touch for expert support on your vulnerability strategy

Whilst the findings and next steps from the FCA’s study aren’t due for publication until later in 2024, the scope of the review – and its importance to customer wellbeing – mean it’s likely to lead to significant work for firms.

We advise firms to begin examining their own policies and processes now to put themselves in the strongest possible position to address the regulator’s findings when published.

Get in touch today to discuss how our team of industry experts can help you evaluate and strengthen your approach to customer vulnerability.