The Money Advice Trust’s Vulnerability Lead Consultant, Chris Fitch, blogs on our response to the FCA’s consultation on its revised Vulnerability Guidance for financial services firms.
I spend a lot of time talking about vulnerability (and listening to others). But the last two months have been more intense than normal, thanks to the FCA’s latest consultation on its forthcoming Vulnerability Guidance (‘GC20/3’, to its friends).
After taking a first look in my earlier blog back in July, hosting a webinar with a panel of industry experts (listen again here), and speaking to many of the hundreds of firms that the Money Advice Trust works with, it was a relief to submit our full response last week.
To save you reading all 44 pages, here are five key areas that we’ve called on the FCA to focus on, as it finalises this welcome document.
- Asking, what are customers ‘vulnerable to’?
The Guidance is a step forward in deepening firms’ understanding of vulnerability, and how to respond to this through their products and services. The FCA should go further, however, by explicitly encouraging firms to ask the same question that the Money Advice Trust asks of every creditor we work with – ‘what are customers vulnerable to’?
This is important for two reasons. Firstly, if a firm does not establish what harm, detriment or disadvantage a customer is vulnerable ‘to’, then supporting them to overcome this will be difficult. Secondly, if a firm only focuses on the drivers or causes of vulnerability, then they may overlook their consequences and effects.
Asking and answering this question is fundamental, if firms are to put in place the right products, services and support mechanisms for their vulnerable customers.
Where firms get this wrong, there’s not only a risk of ‘not helping’ – but of inadvertently exacerbating customers’ situation. That’s why we also want to see ‘the behaviour of firms and markets’ recognised explicitly by the FCA as a key driver of vulnerability, joining health, life events, financial capability and financial resilience.
2. Avoiding misinterpretation
I don’t envy the FCA’s task in putting this Guidance together. The guidance is nuanced, and with this comes the risk of misinterpretation. The revised Guidance mostly avoids this, but in several key respects, greater clarity is needed.
Most critically, FCA’s feedback statement on its previous consultation risks leaving firms under the impression that the Guidance does not require firms “to proactively identify individual vulnerable customers”. We do not believe this is the regulator’s intention – and the final Guidance needs to make crystal clear that staff are indeed required to follow up on ‘cues’ that a customer might be vulnerable to harm.
In addition, the FCA should ensure that key information which can help firms understand the nature of vulnerability and their obligations is included in the actual Guidance document – as it stands, some of this (rich) material published elsewhere risks being lost.
Lastly, the final Guidance would also benefit from a section explaining – in one place – what outcomes ‘must’ and ‘could’ be measured by firms. The FCA need to help firms meet their regulatory expectation that vulnerable customers’ outcomes are as good as non-vulnerable customers. And the FCA need to explain how such outcome comparisons can be made, as their newly introduced ‘spectrum of vulnerability’ now requires every customer to be seen as vulnerable to some form of harm or detriment.
3. Emphasising inclusive design
It is encouraging to see the revised Guidance includes additional detail on inclusive design – but further guidance is likely to be needed by firms to embed this approach fully. This is a task that we hope will be made easier by new guides being published later this year as part of Fair By Design and the Money Advice Trust’s Inclusive Design in Essential Services programme. Greater detail from the regulator, however, is needed – and we hope the FCA will focus on this issue further, both as it finalises this Guidance, and beyond.
We would encourage the FCA to include a clearer definition of inclusive design in the final guidance, further emphasise the importance of an inclusive design approach in the final Guidance, rather than just encouraging firms to consider using it, as well as providing additional information to firms on how this can be put into practice.
Just as we want to see the FCA become a ‘preacher’ on inclusive design, they must become a practitioner, too. The FCA should consider how they too can take an inclusive design approach to their own work, to ensure they fully understand the diversity of consumer needs and experiences and develop regulatory solutions that work for all consumers.
4. Making firms’ responsibilities clearer
There are number of areas where relatively small changes could be made to the final Guidance, which would make a big difference in clarifying firms’ responsibilities.
For example, we would like to see the final Guidance remind firms that they should be using data analytics to routinely and proactively identify vulnerability during digital interactions – to ensure that there is no confusion about their digital responsibilities under CONC. Another example is separating ‘sales’ from ‘customer service’ in the final Guidance – to reflect the specific issues and risks that firms must mitigate when selling products or services to customers in vulnerable circumstances.
In other areas – such as what the law requires on translating materials – further clarity is needed, and we hope our full response will help the FCA address these smaller changes.
5. Practically embedding the Guidance
The proof of any document like this is in the meaningful difference it makes to vulnerable customers – and that rests on firms’ ability to embed the Guidance in their businesses.
To help firms to do this, we have recommended to the FCA that they publish a new practitioners’ toolkit alongside this new Guidance, as was done with the original 2015 Occasional Paper. This should include more detail on what firms should consider when introducing ‘Vulnerability Champions’ – including how these will work over time, be supported in their efforts and have their impact evaluated.
We have also suggested that the FCA needs to work with the Equality and Human Rights Commission (EHRC) to produce more specific, more details, and more practical guidance to help financial services firms comply with the Equality Act 2010. Just as with GDPR and vulnerability (a practical guide to which the Money Advice Liaison Group and Money Advice Trust will shortly be publishing) the intersection of the Equality Act 2010 with the vulnerability agenda is a complex and challenging area, that the regulator needs to help firms to navigate.
Finally, just as firms need help to meet their obligations, they also need monitoring closely on vulnerability as part of the FCA’s supervision and enforcement regime – and we would welcome more detail from the regulator on how firms will be assessed against this guidance.
As I blogged back in the summer, GC20/3 should be seen as a ‘five year plan for financial services’ – rather than an ‘end game’. Once finalised, the real challenge begins – which is to help firms to interpret the guidance, implement change and evaluate their approach to this crucial agenda. Given the impact of Covid-19 – which is exacerbating existing vulnerabilities, and creating new ones – it will be crucial that firms get this right.
Here at the Money Advice Trust we are keen to help firms do this, just as we’ve helped more than 300 creditor organisations on vulnerability so far. I would encourage anyone setting about this task to get in touch for an early conversation – and I’m also keen to hear others’ thoughts on the FCA’s revised Guidance as we collectively address these challenges.