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Forthcoming FCA Guidance on vulnerability

Posted on 25 January 2021

The well-publicised impact that the Covid-19 pandemic is having on household income and finances has given a new significance to pre-existing thematic FCA work on detecting and addressing consumer vulnerability.

We have covered elsewhere in this issue 15 December 2020: FCA Fines Barclays £26m over Treatment of Customers in Financial Difficulty the significant fine imposed on Barclays in December 2020 for its treatment of those of its customers deemed to be vulnerable between 2014 and 2018. Since that period, and well before the Covid related events of March 2020, the FCA has been conducting thematic work on consumer vulnerability to further bolster the existing protections. An FCA consultation paper with guidance was published in July 2020 (ironically delayed because of the FCA's work on Covid-19), and the finalised guidance is due to be published in Q1 2021.

For interested readers, we have prepared a more detailed note on the proposed guidance and what we think FCA regulated businesses should do now to pre-empt it: The FCA's new approach to vulnerable customers.

In summary, the new proposed guidance expands on the FCA's Principles for Businesses and applies to regulated firms dealing with individual retail consumers. It will plainly be of particular interest to certain sectors of the market who deal predominantly with individuals, particularly those not regularly accustomed to purchasing financial services, such as those providing consumer credit or residential mortgages. The guidance adopts a very broad interpretation of "vulnerability", including as a consequence of major life events (such as redundancy or bereavement) and more intrinsic factors such as low levels of knowledge or ability to understand complex products or terms. Firms caught by the guidance are required to assess how its products and services might trigger or exacerbate vulnerability in its own particular client base, and then take steps to reduce/manage that risk throughout the consumer "journey"; from the product design phase, through sales and forbearance for default. There is alongside this an expectation that firms will train their staff to recognise the indicia of vulnerability and to take action accordingly. There will be no transitional period before the guidance takes effect and (for some firms) the work required to get their houses in order may be considerable.

The FCA has said that it will hold businesses to account primarily through its Supervision function, but as the Barclays case shows, Enforcement action is also a real possibility. It is also reasonable to assume that the FCA will be keen to show that it is talking and acting tough around this timely issue.

Whilst not addressed in the guidance, there is also potential exposure here for regulated individuals in firms caught by the guidance. This is because the Code of Conduct for all regulated individuals (whether Senior Managers or otherwise) includes a requirement that customers be treated fairly. It is not a stretch to imagine a failure on the part of a particular individual, or the failure on the part of a Senior Manager to effectively oversee the firm's compliance with vulnerability standards, resulting in Enforcement in parallel with action against the firm.

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