First published in the Autumn edition of Society Matters, by Selena Tye, Associate Director of Interim Regulatory Support, Kind Consultancy.
In 2021, vulnerable customers have been a key regulatory theme. The most recent FCA Business Plan suggests 14.2 million adults in the UK have “low financial resilience” and states that as part of their consultation on Consumer Duty, the FCA will be “monitoring how firms support customers in financial difficulty and take action where needed” and they will “carry out an in-depth assessment of whether consumers are getting fair and appropriate outcomes and use these findings to shape next steps”.
What does this mean for building societies and how should they react?
The FCA definition breaks down into multiple categories of customer vulnerability: Customers in emotional distress who may struggle to make sensible decisions. Customers experiencing dramatic changes in financial circumstances beyond their control. Customers lacking the understanding needed to make informed choices. Finally, customers who don’t have internet access, or the tech literacy to use online banking.
Many customers will be experiencing more than one of these simultaneously and may not be aware of their own vulnerability. The FCA recommends a risk-based approach, with customers continually assessed for all these categories. It can’t be a simple box ticking exercise of dividing customers into vulnerable and non-vulnerable and giving customer- facing staff scripts for each.
The current proposals set expectations for four customer outcomes. Communications must "equip consumers to make effective .... properly informed decision", products and services must be "specifically designed to meet the needs of consumer", customer service must "enable [customers] to realise the benefits of products and act in their interest", and the "prices of products....must represent a fair value". It's important to build and embed a culture of understanding vulnerability, with staff who know how to respond appropriately and care for customers - not just based on a yes/no status but considering the specific circumstances they're going through, ensuring all four outcomes are achieved for each customer.
Building societies will have a head start – it’s always been key to the success of a building society to make sure customers are being listened to and are receiving a personalised service. Industry commentators have suggested that the Consumer Duty will have less of an impact on organisations who are already focussed on these areas, but it may still require a greater focus, a period of upskilling and retraining and changes to policies and procedures. With a regulatory obligation to ensure customers make good decisions based on their needs and characteristics, a thorough understanding of the different vulnerability factors will be crucial at every point of customer contact. I am sure all staff already "avoid causing foreseeable harm", but the proposed "cross-cutting rules" will require organisations to prove they are taking "all reasonable steps" towards these outcomes.
To meet these requirements, organisations are going to need to look at how they're documenting vulnerable customers, what MI is being generated, and what's being done with that data. I think there is a danger of businesses appointing vulnerability champions or a specialist team and treating that as the solution. This change in the FCA approach requires a re-examination of strategy - can all four of those crucial outcomes be provided to every vulnerable customer? Are vulnerable customers consistently receiving the level of service the FCA is looking for - and how can you prove it?
What will that change look like for your society? With months to go before any rules come into effect, it’s important to begin thinking about vulnerability at every stage of the customer journey. I am confident building societies will lead the way in setting standards of Consumer Duty – as they always have.