FCA Clarifies Consumer Duty Regulations on Identifying Vulnerable Customers

The Financial Conduct Authority (FCA) has recently made significant clarifications regarding its Consumer Duty regulations, specifically about how firms should identify customers with vulnerabilities. On May 24, 2024, the FCA updated its guidance page, titled "Consumer Duty – Information for Firms," to provide clearer expectations for businesses.

Key Updates from the FCA

The updated guidance from the FCA emphasises two critical points:

1. Encouraging Disclosure: "Under the Duty, we expect firms to actively encourage customers to share information about their needs or circumstances, where relevant."

2. Recognising Needs Across All Channels: "Firms should try to recognise the needs of consumers, whatever channel they use."

These clarifications indicate that firms must adopt a more proactive approach in identifying and supporting vulnerable customers.

Moving Beyond Training

Traditionally, the focus has been on training front-line staff to identify vulnerabilities. While training is important, some firms have mistakenly believed that it is sufficient on its own for compliance. This misconception has led to a reactive approach, where firms only capture vulnerability information when consumers volunteer it or when it's explicitly brought up in conversations. Additionally, this perspective often leads to an over-reliance on verbal communication channels, ignoring the importance of digital or other communication methods.

Limitations of Analytics

The market has seen a rise in promotions from voice and text analytics companies claiming to "solve" vulnerability identification through their systems. However, these tools often fail to capture the full scope of vulnerabilities. Consumers rarely volunteer information about their vulnerabilities, and even well-trained staff may only record a vulnerability if it directly impacts their current interaction with the customer. This approach often results in only the most severe vulnerabilities being documented, missing the broader spectrum.

The Problem with Reactive Strategies

Relying on reactive methods to identify vulnerabilities leads to significant under-reporting. Many firms report that only a small percentage of their customers are vulnerable, often in single digits. This is a stark contrast to broader data indicating that around 50% of the general population may be considered vulnerable at any given time. Research shows that even the lowest estimates place the percentage of vulnerable customers at around 30%. Firms reporting lower figures are likely not identifying vulnerabilities effectively.

FCA’s Clarification: A Call for Proactive Engagement

The FCA's recent clarification stresses the need for firms to proactively engage with all customers to understand their vulnerability characteristics. Simply knowing that around 50% of customers may be vulnerable is not enough; firms must engage with each customer to determine who is vulnerable and in what ways. This proactive approach allows firms not only to report accurately but also to take meaningful actions to support their vulnerable customers.

Next Steps for Firms

If your firm is looking to improve its identification, support and reporting of vulnerable customers, reach out to us to discuss how our ComplianceTrak and InsightTrak software will help your firm to effectively assess, monitor, and report on vulnerability, ensuring you meet FCA standards.

Proactive engagement is key to meeting the FCA's expectations and ensuring that all customers receive the support they need.

Let's arrange a call to discuss how you can better identify and support customers with vulnerabilities.

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