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The fair treatment of vulnerable customers

Areas for firms to work on

In its Dear CEO letter to lenders on the rising cost of living, the FCA referenced an update on vulnerable customers. This important and useful update assesses the progress of firms in ensuring vulnerable customers are treated fairly and receive outcomes that are as good as those for other consumers. Although originating from lender reviews, the FCA’s comments and observations are relevant to the wider financial services sector including mortgage intermediaries. It should also help firms as part of Consumer Duty implementation.  

Whilst the FCA has seen positives in how firms treat vulnerable customers, it has flagged the following areas for firms to work on:

Use of MI – this is often not well-developed enough, with a lack of examples of MI that track and give effective comparisons of outcomes for customers in vulnerable customers against other customers (this will help ensure vulnerable customers are being treated fairly). MI that is shared with executive committees (or senior management or Director level) must be of sufficient quality to achieve the aims of the vulnerable customers guidance and give assurance that customers with characteristics of vulnerability are receiving fair outcomes. MI also needs to be of a consistent quality across departments.

Looking beyond complaints data – the FCA found that firms are over-reliant on complaints data. Firms should think about broadening the data they collect and analyse; for example, whether customers in vulnerable circumstances incur broker fees and charges more frequently or in greater amounts than other customers. Or data that shows customer retention to understand why customers decide to no longer deal with the firm. For example, have customers switched to another broker firm part way through the mortgage process and why was this? Under the Consumer Duty, firms will be expected to broaden the volume and variety of MI as we shift from the mindset of ‘treating customers fairly’ to ‘delivering good outcomes’.

Capturing data on customer needs – firms should ensure they are capturing information about customers’ needs and characteristics of vulnerability by developing systems and procedures to capture such information. It’s important systems and procedures allow staff to record and access the information and to ensure that customers do not have to repeat information to other members of staff. AMI is aware that firms have started to add “vulnerability” flags to CRM systems and text boxes to allow staff to add further comments. Whilst these efforts are to be applauded, they will not provide consistent MI to be of value to a firm and to satisfy FCA expectations under the fair treatment of vulnerable customers and the Consumer Duty. Firms should be thinking about more structured, consistent assessments of vulnerability. AMI is aware there are commercial offerings that help firms measure and assess vulnerability and view these as useful tools for firms, particularly when we consider the evidencing and monitoring requirements under the Consumer Duty.

Monitoring effectiveness of vulnerability staff training – firms should think about how they can monitor the effectiveness of training as part of their strategies on vulnerability, to make sure that it’s meeting its aims.

Role of senior leaders in driving the correct culture – FCA commented that ‘where we have seen firms with well-developed vulnerability strategies, we have tended to see senior leaders that are involved, accountable and invested in the work’. A firm’s vulnerability strategy should be comprehensive and cut across the whole business. Key considerations are clear lines of accountability for senior leaders and the ability of senior leaders to demonstrate how vulnerability features in senior and executive committee decisions and the information that flows upwards (e.g. to senior management team or board). The FCA’s supervisory approach will look at who is responsible for the firm’s approach to vulnerability, with the expectation that they will be able to demonstrate what they have done to meet their responsibilities.

The fair treatment of vulnerable customers is a key component of delivering good consumer outcomes under the FCA’s Consumer Duty. With firms required to focus on monitoring and evidencing good consumer outcomes, the use of quality and consistent data and information will be key to firms meeting their regulatory obligations. Firms need to demonstrate that they understand customer characteristics, including how they amended their processes to accommodate these characteristics, and be able to evidence this.

AMI plan to issue further guidance on this topic as part of its work on the Consumer Duty.

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