What the FCA Means by Vulnerability

The FCA describes a vulnerable customer as someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm isn’t acting with appropriate care. Its guidance on the fair treatment of vulnerable customers, published in 2021, identifies four key drivers of vulnerability:

• Health: conditions or illnesses that affect the ability to carry out day-to-day tasks
• Life events: such as bereavement, job loss or relationship breakdown
• Resilience: low ability to withstand financial or emotional shocks
• Capability: low knowledge of financial matters or low confidence managing money, and low literacy or digital skills.

Vulnerability isn’t a fixed category. Many people will be vulnerable at some point, and circumstances can change quickly. The FCA’s view is that a large share of UK adults show one or more characteristics of vulnerability at any time.

The Consumer Duty Raises the Bar

The Consumer Duty, part of the FCA’s Principles for Businesses, requires firms to act to deliver good outcomes for retail customers. The FCA expects firms to consider the needs of customers with characteristics of vulnerability across all four outcomes: products and services, price and value, consumer understanding and consumer support. Firms must monitor whether vulnerable customers experience outcomes as good as other customers, and act where they don’t.

That turns vulnerability from a matter of good practice into something firms must be able to evidence, with data, to their boards and to the regulator.

Where Accountability Sits

There’s no Senior Manager Function dedicated to vulnerable customers. Accountability follows the business, and usually sits with several people:

• The Senior Manager responsible for each customer-facing area is accountable for how vulnerable customers are treated in that area, from product design to customer service and collections.
• The Senior Manager responsible for the Consumer Duty, where the firm has allocated that responsibility, oversees the firm’s overall approach and its monitoring of outcomes.
• The compliance oversight function checks whether policies are followed and outcomes are fair.
• The board must review the annual assessment of whether the firm is delivering good outcomes, including for vulnerable customers, and challenge the evidence.

SMF Capital’s article on the Consumer Duty and the SMF framework explains in more detail where accountability for customer outcomes sits.

What Good Looks Like

Understanding the Customer Base

Firms should understand the likely characteristics of vulnerability in their own customer base. A consumer lender, a funeral plan provider and a wealth manager will see very different patterns.

Designing for Vulnerability

Products, services and communications should be designed with vulnerable customers in mind from the start, not adapted afterwards. That includes clear language, accessible formats and routes to human support.

Skilled Staff

Front-line staff need the training and authority to recognise vulnerability and respond flexibly, including tailoring their approach and escalating where needed.

Recording and Using Information

Firms need to record information about customers’ needs, with appropriate consent and data protection safeguards, so customers don’t have to repeat difficult circumstances every time they make contact.

Monitoring Outcomes

Firms should measure whether vulnerable customers get outcomes as good as other customers: complaint rates, time to resolution, arrears outcomes, product suitability, and use of support services. Differences should be investigated and acted on.

Common Failings

• Training without systems. Staff trained to spot vulnerability, but with no way to record it or adapt the service.
• Policies without data. No measurement of whether vulnerable customers actually get good outcomes.
• Rigid processes. Collections or claims processes that don’t allow staff to exercise judgement.
• Third parties overlooked. Outsourced customer service or debt collection that doesn’t meet the firm’s standards.
• Board reports without challenge. Annual assessments that state outcomes are good without evidence for vulnerable groups.

Vulnerability Across Sectors

What good looks like varies by sector. In consumer credit, the focus is often on affordability, arrears and forbearance, where customers in financial difficulty are especially exposed. In insurance, claims handling and renewals matter most, particularly after bereavement or illness. In wealth management and advice, the issues often involve older clients, declining capability, powers of attorney and the risk of financial abuse by others. In payments and banking, fraud and scams are a growing source of harm, and vulnerable customers are frequently targeted.

Senior Managers should understand the specific ways vulnerable customers can be harmed in their area, rather than relying on a generic policy. The best firms review their customer journeys from the perspective of a customer in each of the FCA’s four vulnerability drivers, and ask where that customer would struggle.

Balancing Support and Autonomy

Treating vulnerable customers fairly doesn’t mean treating them as incapable. Customers should be able to make their own decisions, including ones the firm might not make, with the right information and support. Staff need the judgement to offer help without being paternalistic, and to recognise when a customer is being influenced by someone else. Clear escalation routes and specialist teams for complex cases help front-line staff strike that balance.

Complaints as an Early Warning

Complaints from vulnerable customers, and cases referred to the Financial Ombudsman Service, are often the first sign that something isn’t working. Senior Managers should look at complaint data broken down by vulnerability where possible, and at root causes, not just volumes.

The Role of Data and Finance Teams

Evidencing outcomes for vulnerable customers depends on data: customer records, arrears and forbearance outcomes, redress calculations and product value assessments. Much of that analysis sits with finance, risk and data teams. Accountancy Capital, a sister practice of SMF Capital, recruits qualified finance professionals below director level, including analysts and management accountants who support Consumer Duty outcome monitoring in regulated firms.

Questions for Boards

• Do we understand the characteristics of vulnerability in our customer base?
• Can we show, with data, that vulnerable customers get outcomes as good as other customers?
• Which Senior Managers are accountable for vulnerable customers in each area?
• Do front-line staff have the tools and authority to respond flexibly?
• Do our third-party providers meet our standards?
• What have we changed as a result of what the data told us?

Hiring With Vulnerability in Mind

When firms recruit Senior Managers for customer-facing areas, they should test how candidates have handled vulnerability before. Strong candidates can describe specific changes they’ve made to products, processes or collections practices, and how they measured the effect. For compliance roles, experience of Consumer Duty outcome monitoring is increasingly important.

The Bottom Line

Treating vulnerable customers fairly is a senior management responsibility, not a front-line training topic. Firms that understand their customers, design with vulnerability in mind, measure outcomes and act on what they find are meeting the regulator’s expectations and serving customers well. Boards and Senior Managers who can show that with evidence are in a strong position. For more on the Senior Manager Functions involved, see SMF Capital’s Senior Manager Functions guide.