Identifying which customers are "vulnerable"?


The FCA issued the long-awaited guidance on vulnerable customers over the summer and their view on which customers are to be classed as vulnerable may come as a surprise to firms.


Many of us think of vulnerability as primarily relating to age and illness, and those are certainly factors, but the guidance from the FCA sets out 4 key drivers that increase the risk of vulnerability.


In practice one of these factors could apply to most customers at some point in their life so not only will staff need to be aware of the types of vulnerability but will need to be aware that an assessment of vulnerability can change over the life of a client relationship or life of an investment.


The 4 Vulnerability Factors


1. Health

As expected, health conditions or illnesses that affect the ability of a person to carry out day-to-day tasks increases their risk of being vulnerable;

2. Life events

Major life events such as bereavement, job loss or relationship breakdown;

3. Resilience

Low ability to withstand financial or emotional shocks; and

4. Capability

A low knowledge or capability in areas such as financial matters, literacy and digital skills.


The first step in meeting the guidance is to identify and understand your customers and what might increase their risk of being vulnerable. The type of product or service you offer and the ways in which you communicate to your customers will heavily influence the types of vulnerability you see. For example a firm offering a consumer credit product, where debt is involved, will need to interact and manage vulnerability differently to a firm offering an investment product.


How far to go

The FCA want firms to be proactive, not just to react to a customer who shows vulnerability in the moment. This means that the fair treatment of vulnerable customers must be embedded throughout your firm's culture as well as in your policies and product development practices.


The full text of the consultation and the draft guidance can be found here: “GC20/3 Guidance Consultation and feedback statement: Guidance for firms on the fair treatment of vulnerable customers

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