The Financial Conduct Authority (FCA) defines a vulnerable person as "someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care". The FCA's definition highlights that vulnerability can be due to a range of personal circumstances, ranging from physical or mental health problems to life-events which can affect an individual's life significantly. Moreover, the FCA highlight that financial services firms are responsible for implementing safeguards and procedures to protect vulnerable persons from exploitation and neglect. Therefore, knowing how to identify vulnerable consumers is important.
What is a Vulnerable Person?
A vulnerable person is a person that is at risk of harm or abuse due to physical or mental health problems, financial problems, life events or lack of capability and confidence when dealing with finances.
When we consider vulnerable persons in the context of the financial services industry it is very serious, as vulnerable persons can be exploited due to the complex and serious nature of financial services. If a vulnerable person has a low income or significant debt, they might struggle if prices or interest rates increase and a minor change in circumstance occurs. It has been estimated that this financial vulnerability affects approximately 30% of UK adults, and thus there is a significant proportion of customers who could be vulnerable when it comes to financial services.
How to Identify Vulnerability
To identify vulnerability, the health, resilience, life events and capability of a consumer must be taken into consideration.
Health: It has been estimated that 5% of UK adults are vulnerable due to their health. This includes physical disability, long-term illness, mental health problems and elderly problems such as cognitive, mobility or sensory impairment.
Resilience: Resilience refers to an individual's financial position, for example, if they have a low income or debt, they could suffer when prices or interest rates increase.
Capability: Those with limited knowledge or confidence in managing finances can be vulnerable. It is estimated that 17% of UK adults report that they have limited knowledge of their finances, this can be due to inexperience, low literacy, numeracy, language, and financial capability skills. Therefore, when engaging in financial services, these consumers will be considered as vulnerable due to a lack of capability.
Life Events: Life events can include bereavement, sudden relationship/household changes, benefits difficulties or carer responsibilities, which could change an individual's circumstances and make them vulnerable as a result.
Consequences for Failing to Identify Vulnerability
The FCA has highlighted that it will take action against firms treating vulnerable customers unfairly to ensure that there is consistency across the financial services sector. The FCA stated in July 2019 that firms were "clearly failing to consider the needs of vulnerable consumers, leading to harm".
Moreover, Christopher Woolard, executive director of strategy and competition for the FCA, stated that "protecting vulnerable consumers is a key priority for the FCA and we want to see firms explicitly embedding the fair treatment of vulnerable consumers into their culture."
The FCA's drive to enforce fair treatment for vulnerable persons is an important way to ensure the financial services industry demonstrates integrity. Therefore, by implementing safeguards to protect a vulnerable person in your organisation, you will demonstrate good business practice and avoid investigation from the FCA.