OPINION What do the FCA Consumer Duty and guidance mean for financial services firms?

Jonathan Barrett

By Jonathan Barrett, CEO and Co-Founder at Comentis.

Earlier this year (16th June 2022) new guidance to lenders was issued by the Financial Conduct Authority (FCA) explaining that it will no longer wait for Customer Duty to take effect before taking action to improve customer outcomes with regards to vulnerability.

Just a couple of weeks later in July, the final Consumer Duty details were released by the FCA too covering customer vulnerability. Both the guidance and duty detail, have been a long time in the making. And whilst the FCA’s direction of travel on vulnerable customers has been clear for some time, the pressure caused by the cost-of-living crisis and the impending recession has rightly brought yet more urgency to this fundamental, yet complex, issue.

Due to a lack of fanfare on release, some will be mildly surprised to see that the existing Fair Treatment of vulnerable customers guidance is now baked into some of the new Consumer Duty rules. This means that no matter how hard or complex customer vulnerability identification and support may be for the financial services industry the needs of individual clients must be adequately and fairly assessed, and further support has to be provided for those who require it from now on. But in reality, it’s about time too.

Never before has it been more important for financial services firms to sit up and take action to make sure they are supporting their vulnerable clients.


Systematic, quick and consistent.

While many financial services firms are eager to be there for their vulnerable clients, there are plenty for whom these announcements will cause concern, not least due to the immediacy of the communication. The guidance made clear that identifying and supporting vulnerable customers’ needs to be as systematic as it is consistent, and that it needs to be done quickly, too. But, of course, even identifying who is at risk in the first place can be difficult. And then there’s the question of the various processes that need to be in place. Which systems should you choose? How can you ensure that every eventuality is covered? How can one ensure consistency?

Firms need not panic though; help is out there. And in the first instance, a simple three-step framework can help shape the different approaches they might wish to consider:


Step 1: Spot the signs.

The FCA describes a vulnerable person as somebody whose circumstances make them “especially susceptible to harm – particularly when a firm is not acting with appropriate levels of care”.

It also outlines four key drivers for firms to consider, namely; health, life events, resilience and capability.

These signs can be difficult to spot, especially when clients either hide their situation or don’t believe they’re financially vulnerable. This is particularly true for the more cognitive based triggers, resilience and capability. Likewise, what one firm deems vulnerable might not be considered the same by another. But with the right tech and processes, a truly objective process can be achieved.


Step 2: Understand the impact of the driver.

Once financial vulnerability has been identified, the second step is to understand the link between the driver and the creation of a vulnerability. What’s imperative here is assessing the extent to which each driver impacts that person’s circumstances. In other words: which factors are making a tangible difference? The impact of the driver (or drivers) needs to be fully understood for the appropriate support to be adopted. What we have seen through the assessments carried out on our platform is that there are often a number of impacts to a single driver. For example, where bereavement is the driver, we are seeing multiple vulnerabilities identified, and these vary from person to person. What is clear is that one approach to bereavement for example, is unlikely to offer the right levels of support another client. It is really important to understand how the circumstance is affecting the individual and then support accordingly.


Step 3: Identify the optimum response pathway.

First, they should ask: what is the temporal nature of the situation? A customer might only be at risk temporarily – perhaps they’re between jobs or have suffered a breakdown of their relationship. Others might be permanently at risk (for example, suffering from a terminal injury or condition), while some could be experiencing fluctuating fortunes dependant on a wide range of circumstances.

Next, they will need to determine where the vulnerability is rooted. The factors could be individual (personal health circumstances), environmental (redundancy), institutional (use of jargon, selective communication channels) or even a mixture of all of these.

Once firms truly understand the situation, they can identify appropriate responses.

There’s no doubt about it, identifying vulnerable customers can be daunting for firms. But help is available. Technologically driven assessment tools exist that can help to identify financially vulnerable customers and get the right systems in place to ensure consistency across a whole client base. For instance, our platform at Comentis combines clinical expertise from mental health experts and psychologists with hard data, to present a fact-based assessment of individuals and their circumstances, as well as how a vulnerable circumstance is likely to impact the client, removing the subjectivity from the process. Given what we have discussed above, arguably clinical led solutions are the only way to assure that all the vulnerability drivers are in scope, thereby giving firms reassurance that their systems and controls will be adequate to meet the scrutiny of regulatory requirements.

What is clear here is that firms must not approach this half-heartedly. There’s no scope to simply paper over the cracks. A long-term solution is required; and indeed, one that will hold up to regulatory scrutiny now and for years to come.

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