Understanding vulnerability and the impact of consumer duty has been key behind the launch of a new group led by Keith Richards, chief executive of the Financial Vulnerability Taskforce and former chief executive of the Personal Finance Society.
At an event today (March 9) he unveiled the new body known as the Consumer Duty Alliance (CDA), which came about following the introduction in July 2022 of the Financial Conduct Authority’s final rules on consumer duty.
Richards says: “The FVT board recognises that the financial services sector would from this point on consider vulnerability within the wider context of the duty, and that the FVT would be better able to support the sector and meet its founding objectives by doing the same.
“At the same time, the board felt that the FCA’s position that the successful implementation of consumer duty could lead to a potentially less prescriptive and more flexible regulatory framework opened up the opportunity for an independent, non-commercial body to engage and influence any framework development for the good of both the consumer and sector.”
Vulnerability
The CDA aims to help advisers improve their understanding of vulnerability and how consumer duty is going to shape their approach to vulnerability.
As Richards explains, clients can either have identifiable vulnerability or face vulnerable circumstances that might be permanent or temporary that the consumer duty encompasses. In principle, most clients have vulnerable circumstances even if it is as straightforward as inexperience or lack of knowledge.
In practical terms consumer duty has upgraded the existing guidance on vulnerability by requiring firms to be active rather than reactive in identifying vulnerability, to understand vulnerability at both an individual level and firm level and to be able to record and audit over time.
The FCA's existing guidance on vulnerability will still apply and where the consumer duty rules specifically reference customers with characteristics of vulnerability, they do so in a way that is consistent with their existing guidance on vulnerability.
Following the FCA's final guidance for firms on the fair treatment of vulnerable customers, which was published in 2021, the final non-handbook guidance for firms on the consumer duty, published last year, brings much of the former guidance into a world of regulatory enforcement.
In the handbook, the FCA says: “We expect consumers with characteristics of vulnerability to benefit from the overall improvements in outcomes delivered as a result of the new duty."
Richards says: "Put simply, as consumer duty requires firms to support their clients over the lifetime of a product or service, they need to be aware of whether any developing vulnerabilities or circumstances impact on the consumers ability to continue to benefit from a policy of service."
So firms will need to think about how they audit this over time, probably by building questions and identification of vulnerability into things like annual reviews.
