Last month, the FCA published the findings of a multi-firm review into how financial services firms are treating vulnerable customers.
While the regulator observed examples of good practice, the review also highlights that many firms are still falling short of the standards expected under the Consumer Duty, particularly in delivering consistent outcomes for vulnerable customers.
In this blog, we examine the key findings of the review, explore the FCA’s expectations, and consider what firms should be doing to improve their approach to vulnerability.
Key Findings from the FCA’s Review
The FCA’s recent multi-firm review assessed how firms are applying its 2021 vulnerability guidance in light of the Consumer Duty. The review was to evaluate both the compliance of firms and the suitability of the guidance itself under the Duty.
Good Practices
Many firms have taken meaningful steps to improve their support for vulnerable customers. These include better training for customer-facing staff, improvements in internal escalation processes, and more tailored support designed to reflect customers’ individual needs.
The review also noted examples of firms adapting communications and service delivery to reduce barriers for customers experiencing mental health issues, bereavement, or financial distress.
Areas for Improvement
Despite these positive developments, the review identified significant areas for improvement.
Most firms reviewed were unable to demonstrate how they monitor outcomes specifically for vulnerable customers or how they responded when outcomes fell short. In some cases, issues were not escalated appropriately, and changes to products or processes were not made when evidence suggested that customer needs were not being met.
The review also found that many firms are not providing the right level of support in practice. While policies may exist on paper, they are not always reflected in the customer experience. In several instances, firms had not adapted their communications to meet the needs of customers in vulnerable circumstances. This included using complex language or failing to offer information in alternative formats.
Finally, the review highlighted a lack of tailored training and weak integration of vulnerability considerations into product and service design. Product development processes often failed to reflect the needs of vulnerable customers, meaning that risks were not adequately considered at the outset.
The Disclosure Challenge
Alongside the review, the FCA released accompanying research, which draws on consumer experience, reveals that only around 40% of people with characteristics of vulnerability disclose their circumstances to financial services providers. Of those who did disclose, only half were encouraged to do so by their provider.
This is a challenge for firms. A lack of disclosure makes it difficult to recognise customers who may need additional support, leaving vulnerable customers falling through the gaps. Firms cannot rely on customer disclosure alone and should instead look to proactively identify signs of vulnerability and offer support without waiting for explicit requests.
No New Requirements – but Clear Expectations
Despite the gaps identified, the FCA’s accompanying statement makes it clear that FG21/1 in its current form is here to stay.
Instead, the FCA has published additional case studies to help firms benchmark their practices. These include examples of both good and poor practice and aim to support the sector in raising standards.
Final Thoughts
The fair treatment of vulnerable customers is a central aspect of delivering good outcomes under the Consumer Duty. While there is no immediate change in the rules, there is a clear message from the FCA: progress has been made, but more is required.
For firms looking to assess their current approach or integrate vulnerability considerations into their wider Duty compliance framework, API Compliance can help.
We provide practical support, training, and strategic advice tailored to your business model and regulatory obligations. Get in touch using the form below to learn more.
