Delivering Good Outcomes and Fair Value for Vulnerable Customers

EDITOR'S NOTE: This is the introduction to the report. To read the whole report, click the button "Download Your Copy".

The Financial Conduct Authority’s (FCA) work on Consumer Duty evolved from consultations in 2021, which aim to improve the conduct of financial firms in the UK when it comes to consumer protections.

In that time, several economic factors have proven this standard was a prescient piece of regulation.

The FCA reports than in May 2022, over 9 million people ranked keeping up with household bills a heavy burden – up two million since 2020. From a cost-of-living squeeze, to rising mortgage costs and interest rates, it has become more important than ever that consumers are provided with fair and competitive rates, and that vulnerable customers are not subject to potentially exploitative products.

Of particular concern, are vulnerable customers. The FCA defines vulnerable customers as, “someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.”

The FCA reports an estimated 47% of UK adults show one or more characteristics of vulnerability in 2022.

The term “vulnerability” covers key drivers such as physical and mental health issues, major life events, low financial resilience, and low capability to develop knowledge on financial matters. Consumer Duty will have a widespread impact on financial firms, consumers, shareholders, investors and regulators. From identifying vulnerable customers, to tailoring products and communicating these back to vulnerable customers, financial firms are required to demonstrate and ensure they are acting in the best interests of the consumer.

To be compliant, financial institutions will have to make substantial changes to their current customer contact. However, this transition hasn’t been easy.

Copia Capital Management reports that 73% of financial advisors are not ready to meet the July 31, 2023, Consumer Duty deadline. In 2022 alone, over 215 million pounds in fines were distributed by the FCA. There has also been a lacklustre push among some firms to take this seriously and has revealed a startling lack of insight into their own industry. The FCA reports that only 5% of cryptocurrency firms were able to demonstrate their comprehension of anti-money laundering regulations when applying for registration. However, among the firms who engaged in the registration process more seriously, 50% were successfully registered.

AI (artificial intelligence) has emerged as one key tool that can help firms meet these stringent requirements.

Jessica Rusu, the FCA’s Chief Data, Information, and Intelligence Officer, has highlighted that she is frequently asked about three areas regarding Consumer Duty: reducing firm burden, interoperability, and data. She believes that technology can deliver on many of the requirements set out by the FCA.

This report will first outline the key requirements of Consumer Duty and highlight the biggest challenges organisations are struggling with. It will then provide insight into how financial firms can improve their customer contact – particularly, contact with vulnerable customers – and the role AI can play in reducing the burden placed on financial firms as well as providing products and services better tailored to customer needs.

Key Pieces of Content

• A cheat sheet to understanding the new FCA regulation
• An SME interview on how technology and talent can work together to protect vulnerable customers
• A playbook for identifying key points of vulnerability in the customer journey