StepChange response to new draft FCA vulnerability guidance to firms

StepChange Debt Charity commends the Financial Conduct Authority for its thorough analysis and new draft practical guidance to firms to help them improve their treatment of customers with vulnerabilities – or potential vulnerabilities.

Among the charity’s clients, 36% in 2018 had additional vulnerabilities, and last year the charity’s Breaking the Link report highlighted the correlation between vulnerability and debt. StepChange sees it as crucial that better steps to protect people – any of whom could become vulnerable at some point after they take out a financial product or service – are hardwired in to the products and services that financial firms offer.

Seeing the regulator recognise the importance of this is significant – especially given the fact that, as the FCA highlights, half of UK adults (25.6 million people) are potentially vulnerable.

The charity will respond fully to the consultation on the new guidance, which closes in October. However, StepChange’s initial observation is that the extent to which the guidance makes a practical difference will depend on how well and thoroughly firms embed it, and how well the regulator subsequently monitors its use through supervision.

StepChange particularly welcomes section 4 of the guidance which emphasises the steps that firms need to consider when designing their products and services – requiring an upfront consideration of where vulnerability might trigger harm within the product.

Research earlier this year from StepChange analysing the outcomes experienced by the charity’s own clients showed that those with additional vulnerabilities – but similar underlying financial positions – made less progress in resolving their debts than other clients without vulnerabilities. This group of clients is also only half as likely as the client group overall to say they are dealing better with day to day life than before they sought debt advice, reflecting the problems that vulnerability creates – which financial firms need to factor in to their approaches. As the FCA notes, there is a strong correlation between vulnerability and poor mental health – and debt. So the FCA’s emphasis to firms on monitoring and understanding customer outcomes is equally important.

As the FCA points out in its background, the consequences of vulnerability mean that firms should not rely on consumers being able to make rational decisions when they are affected. make it harder for people to represent their interests. Impacts can include people being more vulnerable to mis-selling, less able to manage their affairs, and more likely to purchase inappropriate products or services due to the stresses they are under. While the regulator notes that one a case-by-case basis firms are seeking to improve their treatment of vulnerable customers, StepChange shares the view that a more systemic approach taking account of the widespread nature of potential vulnerability is far less well embedded.

Commenting on the new draft guidance, StepChange Head of Policy Peter Tutton said: “Our research shows the extra problems vulnerable people can face and the difficulty of resolving problems. This FCA guidance is vital step to market that works well for all people. We look forward to the focus it should produce on ensuring products and services can accounts of the needs of vulnerable consumers by design.. So we welcome the FCA’s new guidance, and urge the regulator to implement it as soon as practical and to monitor it closely.”