The Money Advice Trust’s vulnerability lead Chris Fitch shares a first take on the FCA’s proposed new vulnerability guidance
Announced last week, the Financial Conduct Authority’s “Guidance for firms on the fair treatment of vulnerable customers” came out just in time to slip into many people’s Summer holiday packing.
Representing guidance for consultation, the FCA uses 69 pages to explain to firms what might be expected of them, and in doing so, makes reference to vulnerability 688 times, guiding principles 98 times, and potential consumer outcomes on more than 60 occasions.
For many firms, however, only one statistic may ultimately count: whether this new FCA guidance not only explicitly tells them where to head on vulnerability, but also how to get to this destination.
With this in mind, the Money Advice Trust and UK Finance – as part of a session of our joint Vulnerability Academy – brought together more than 20 financial services firms to discuss the new guidance, to share their initial reactions to it, and to explore whether such a roadmap to address consumer vulnerability is really something best led by the regulator alone.
An important step…
Our discussion started with firms’ initial reaction to reading the document, and the FCA’s accompanying plans for the consultation.
In one respect, the simple publication of the guidance represented a milestone for firms – with ‘helpful’, ‘useful’, and ‘energising’ all being used to describe the guidance and consultation process. More specifically, the guidance was seen as a reassuring ‘refresher’ of the FCA’s existing expectations, and (for some firms) confirmation that they were broadly in line with these.
This praise was, however, carefully caveated. Many firms said they had expected a ‘predictable’ degree of ambiguity in the FCA’s description of what action firms actually had to take, and the guidance had not surprised them in this respect.
This view was shared across the group. When asked, nearly two-thirds of the firms we spoke to agreed that the FCA guidance had addressed the ‘right issues’ in its content. Particular praise was given to the consideration given to vulnerability during each stage of the product design cycle.
However, just three firms in our group of 20 agreed that the ‘right degree of clarity’ had been achieved on what firms should actually do. Specific concern was expressed about the ‘language knots’ in the document with the early use of terms such as ‘potential vulnerability’, ‘actual vulnerability’, and ‘transient vulnerability’ making an already large and complex challenge from the outset seem even more difficult.
The guidance on communication was seen as key by firms – with most already working on the further simplification of materials and agreements. Smaller firms welcomed what they saw as a ‘proportionality principle’ in the guidance with the FCA’s acknowledgement that larger firms should offer a broader range of communication options and channels. This eased concerns about the resource and technical implications of multi-channel communication for their organisation, although concerns still existed that consumers would expect this as the norm, even if the regulator did not.
‘Understanding’ also dominated the firm discussion. Most firms saw consumers understanding what they had been told as key to the business relationship, but some noted that understanding was only one part of a larger process of consumer decision-making. Alongside understanding, the consumer needed to recall or draw-upon essential information, weigh-up their options, and have the opportunity to talk through any questions or issues, as well as communicate a final decision. Some firms felt the narrower emphasis on understanding, missed out these key elements.
Furthermore, firms also observed that relatively little guidance was provided by the FCA on vulnerability and the sales process itself, something which is central to the relationship with most consumers.
Costs and benefits
During our Vulnerability Academy, considerable time is spent considering what data firms should collect about vulnerability, in what form (management information, account flag systems and wider architecture, quality assurance score-cards), and for what purpose.
Consequently, the FCA’s commitment to undertaking an analysis of the costs and benefits of taking different firm actions on vulnerability was welcomed by the firms we have spoken to so far – and I agree that this is a positive commitment. This could help firms to prioritise where to effectively invest their resources, and to capture the impact in commercial and customer outcomes.
However, putting aside whether appropriate firm data are available to undertake such an analysis, the big question that jumps out to me here is who will define what ‘benefits’ and ‘costs’ are considered in these models? Given that ‘consumer benefits’ will lead to ‘firm costs’, it is important that both firms and consumer organisations are involved in setting these parameters.
Vulnerable to what?
Fundamentally, firms need to understand what a vulnerable consumer is actually vulnerable to – without this insight, firms cannot effectively prevent detriment from occurring in the first place, or respond to harm when it is experienced.
Despite this, firms noted a tendency in the guidance to re-describe and revisit the individual drivers of vulnerability (the causes), but to give less consideration to examining the types of often common harms that consumers can experience (the detriment).
Consequently, firms observed that the revised FCA guidance might benefit from starting with a typology of common vulnerability harms. One advantage of such an approach is that it would recognise that this diverse range of individual drivers often end up having broadly similar types of impact or harm. Firms felt that starting with such a ‘common harms’ approach could encourage collaboration and knowledge sharing across the sector, as it provides a common language or framework for action (and one that works for the much wider range of vulnerability drivers).
Are we there yet?
Clearly, there is much more to welcome and say about the FCA guidance, than what has been captured here in this first take. It’s ambition to consolidate the FCA’s expectations and thinking on consumer vulnerability into a single source would represent a significant achievement – particularly when you consider that only 20 or so months ago, many of us were busy arguing against the FCA’s then plans to weaken its definition of a vulnerable customer.
At the same time, however, important questions are left hanging about the inclusion of guidance on the Equality Act or GDPR, as well as what the consultation means for debt advice agencies (who are also FCA regulated ‘firms’). The non-binding status of the guidance will raise questions about whether further duties and responsibilities need to be placed upon firms.
For these reasons, and the issues outlined above, I don’t think we can answer the question of ‘are we there yet?’. Critics might argue that if the current guidance were a roadmap, it would certainly tell you the names of the towns and places the FCA thinks you should, could, and may need to visit. However, it wouldn’t be able to tell you how to actually get to these places in the first place.
Fortunately, this is the gap that is being filled by the ever-growing appetite of firms to improve their policies, processes and training on vulnerability – and initiatives such as our joint Vulnerability Academy with UK Finance and the Money Advice Trust’s wider programme of training and consultancy work with firms is a testament to that.
An ongoing conversation
There is a need to develop a common approach, using common language, based on frontline professional and consumer experience, and developed in collaboration between the regulator, firms, consumer organisations, and charities.
As part of this, we are looking forward to discussing the FCA’s proposed guidance further with firms over the summer and autumn, as part of the Money Advice Trust’s response to the consultation – and I will be hosting our next webinar on this very topic on Thursday 12th September, 10am – 11am for which you can register here.