Firms must consider the needs of vulnerable customers in all aspects of their operations, including ongoing training of customer-facing staff, reviewing the inclusivity of customer-facing documents, and service design (including where services or products are co-manufactured).
A cross-cutting consideration is the fair value of services – for example identifying if charging structures impact certain groups differently, resulting in reduced outcomes. As firms increasingly digitise aspects of their services, they should also consider the needs of vulnerable customers who are less able to engage with digital services.
The FCA is reviewing how firms are acting to understand and respond to the needs of customers in vulnerable circumstances and aims to share findings by the end of 2024, so we will see more examples of good and bad practice then.
The FCA's stance on enforcement and flexibility
So, is it feasible for firms to meet all of these new obligations?
The FCA has acknowledged that the consumer duty represents a significant shift in how firms operate. While they do not expect perfection in the first year post-implementation, they require organisations to have embedded a culture of continuous assessment and improvement.
The FCA's enforcement approach is risk-based, focused on preventing consumer harm. Where actual or potential harm is identified, the FCA is unlikely to be lenient and will demand change.
However, the FCA also recognises that the consumer duty and the cultural changes it aims to foster are ongoing processes.
Therefore, they may exercise a pragmatic approach for firms who recognise they have room for improvement but are implementing a clear plan of action, particularly where no actual consumer harm has been identified to date.
Vulnerable customers in annual board reports
A key objective of the annual board reports is to compel firms to assess their compliance with the consumer duty and identify areas for improvement.
The FCA has been impressed by firms that adopt a data-driven approach, using data to highlight areas where particular groups may experience poorer outcomes.
By leveraging data, firms can provide a transparent audit trail demonstrating ongoing remediation efforts and board engagement.
This transparency is crucial, as in their annual board reports on the consumer duty authorised firms must not only report on current actions but also outline future measures (including self-reporting to the FCA under Principle 11 in certain circumstances) to enhance customer outcomes.
Privacy concerns and data handling
Privacy issues and GDPR requirements pose additional challenges for firms in identifying and supporting vulnerable customers. While GDPR necessitates careful handling of personal data, it should not prevent firms from fulfilling their regulatory obligations.
Firms can rely on 'legitimate interests' to process non-special category data without explicit customer consent. However, for special category data, such as health information, firms must obtain explicit consent and clearly communicate this in their privacy policies.
