The Financial Conduct Authority (FCA) have a key focus on safeguarding vulnerable persons in the financial services industry, to ensure that all consumers are treated fairly and are protected. The customer service staff in a financial services firm play a vital role in identifying and supporting vulnerable persons. Financial services firms must meet the FCA guidelines around safeguarding vulnerable persons to protect clients and to remain compliant. To understand how to meet the FCA guidelines appropriately, the FCA provides guidance and advice on their websites and in the FCA handbook. If a financial services firm fails to comply with the FCA guidelines they will be subject to investigation and significant penalties. Therefore, it is important to understand how consumers can be vulnerable and how to safeguard them appropriately.
Who is considered as a Vulnerable Person?
The FCA defines three categories of vulnerability:
Particularly vulnerable: Particularly vulnerable persons are at far greater risk of harm than most vulnerable customers and therefore this harm could be more imminent and have severe consequences. Particularly vulnerable persons could have mental capacity limitations and mental health issues, and therefore they must be safeguarded appropriately.
Vulnerable: A vulnerable person is someone whose situation puts them at particular risk of harm, especially if firms fail to take appropriate care to safeguard them.
Potentially vulnerable: Potentially vulnerable customers can make informed decisions about their finances. They are not vulnerable now, but they could become vulnerable in the future.
The FCA requires firms to consider the welfare of vulnerable and particularly vulnerable customers. It is important to identify and safeguard these vulnerable customers. The customers who are vulnerable now may not be in the future, and vice-versa, therefore it is important to review customers.
What constitutes vulnerability?
Customers can become vulnerable for a range of reasons, such as the following:
Health: 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: Those who have a low income or debt could struggle if prices or interest rates increase, therefore making them vulnerable. This affects around 30% of UK adults.
Capability: Those with limited knowledge or confidence in managing their finances could become vulnerable, as 17% of UK adults report that they have limited knowledge when it comes to their finances. This can be due to inexperience, low literacy and numeracy skills, language and financial capability skills.
Life Events: Bereavement, sudden relationship/household changes, benefits difficulties or carer responsibilities could make someone vulnerable.
Why is it important to safeguard Vulnerable Persons?
Vulnerabilities can have a range of financial, emotional and practical consequences, which could affect a vulnerable person’s financial situation and decisions. Negative impacts include financial losses, unfair treatment, increased stress, mental incapacity and infringement of legal rights. Therefore, it is important to safeguard vulnerable persons to avoid negative impacts such as these.
The FCA will investigate firms if they suspect that a vulnerable person has been neglected or exploited. If the FCA identify a negative impact on vulnerable customers, they will increase the penalty and fines imposed on the responsible firm.
The FCA guidelines on safeguarding vulnerable persons
The FCA demands that firms must demonstrate the following practices:
- Demonstrate consistent practice across all operational areas
- Implement a Vulnerable Persons Policy which all staff are aware of
- Provide adequate training for employees regarding dealing with vulnerable persons
- Empower specialists to be flexible
- Apply terms and conditions flexibly
- Communicate flexibly and accessibly with all customers
- Provide clear product information
- Review practices to identify areas for improvement
- Continuously evaluate the effectiveness of the Vulnerable Persons Policy
It is of utmost importance for firms to abide by the FCA guidelines for safeguarding vulnerable persons. Therefore, establishing how your firm is going to identify and treat vulnerable persons is essential.