Supporting Vulnerable Customers – A strategic win for businesses too

Supporting vulnerable customers is going to be particularly important for financial services firms over the next 12 months. Undoubtedly, compliance with the Consumer Duty means that understanding what vulnerable customers’ needs are is a must, but the benefits to firms are more than simple compliance with regulatory requirements.

We are more aware of the impact of changing circumstances now, in part fueled by the ongoing cost-of-living crisis, and which has exacerbated many underlying vulnerabilities. There’s also a growing recognition of the interaction between vulnerability, financial difficulties and other types of exclusions, such as digital poverty. The media is moving beyond stories that focus purely on financial aspects towards broader issues like impacts on well-being and access to services.

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The Financial Conduct Authority has long recognised the importance of protecting vulnerable customers. Over the years, the approach has evolved somewhat as the Regulator has aimed to incorporate these changes in societal and cultural mores and undertaken thematic work of its own. Early work identified that certain groups of consumers were more likely to suffer detriment when dealing with financial services firms, either because of their personal circumstances or due to the complexity of financial products.

In 2015, the FCA published its Occasional Paper No. 8, Consumer Vulnerability, which outlined the types of vulnerabilities that could impact consumers and set out that it expected firms to be flexible and understanding when working with affected customers.

The FCA refined this work further with the 2020 publication of the Guidance for firms on the fair treatment of vulnerable customers. This document set out clear expectations for the identification and support of vulnerable customers. Practical steps, expectations around training staff to recognise signs of vulnerability, and designing products and services that meet the needs of vulnerable customers were all expected to be incorporated into business as usual.

The challenges that vulnerable customers face are now better understood. Changes in technology mean that we have the ability to mitigate many of these challenges. And the FCA expects that firms will continue to meet evolving standards under the Consumer Duty. Its focus won’t shift however, as it is currently undertaking a review of firms current actions and treatment of customers. 

More than complying with the regulatory requirements, supporting vulnerable customers is good for business. The new direction of the regulatory framework is nudging the industry towards cultures developed around positivity and higher ethical standards, which aligns with newer societal expectations of good quality support. The simple fact is that businesses that have a trustworthy reputation will maintain customer loyalty.

Mishandling vulnerable customers won’t stay on the downlow in 2024. Whether through public complaints on social media or via the Regulator’s warning system, this can lead to significant reputational damage, as well as increased regulatory scrutiny. 

The FCA’s changes to CONC, coming into force in November 2024, highlight the knock-on effect of supporting customers who aren’t just in arrears, but are approaching arrears. The thinking is that if those customers are supported at an early stage, this can prevent debts from escalating, reducing the risk of defaults and actually increasing the amount of credit those customers repay in the longer term. This also goes for vulnerable customers. If they are properly supported, they are better able to fully utilise financial products, which in turn will support a stable economy. Supporting vulnerable customers well gives any firm a competitive advantage. 

This competitive advantage makes all the difference in 2024. Demonstrating a genuine commitment to supporting customers who might need simply more time to process information, who might need us to work with their trusted third party, or who might benefit from different communication tools will position your firm as an ethical leader. Where customers have a choice, this is important.

Firms need to ensure that their staff training covers identifying indicators that someone might be vulnerable, and how to support them. We offer a dedicated online training course on the Fair Treatment of Vulnerable Customers. Priced at just £20 per user, the course is accessible at the delegate’s convenience and provides a certificate upon successful completion, allowing firms to track and record each user’s progress.