It is now six months since the FCA’s groundbreaking Consumer Duty came into effect. Reflecting on progress so far, Andrew Gething, Managing Director at MorganAsh, not only sounds the warning bell to those advisers and firms still in denial that the FCA really does mean business when it comes to enforcing the rules relating to vulnerable clients and vulnerabilities – but also offers a practical solution for those advisers keen to keep on the right side of the regulatory fence

There’s no question that many firms across financial services were hoping that the FCA would not actually enforce Consumer Duty. Much to their dismay, the FCA is increasingly vocal on issues of vulnerability and Consumer Duty.

Through its keynote speeches, webinars and direct communications with CEOs and firms, the FCA has highlighted concerns and poor practice around data and processes for identifying and supporting consumer vulnerability. In particular, firms claiming that they have no vulnerable customers, those asking clients to self-identify and those with no vulnerability assessment framework find themselves in the regulator’s crosshairs – especially as it begins an in-depth review of consumer vulnerability.

Repacking existing data

Back in November, Nisha Arora – the FCA’s director of cross-cutting policy and strategy – gave a significant speech. The lack of progress by some firms was particularly highlighted, as was firms trying to just repackage existing data.

Nisha said: “Where firms are not meeting our expectations, it’s often because they are just repackaging existing data and haven’t thought seriously about what information they would need to really understand consumer outcomes.

“And I would stress that firms who haven’t considered how they will monitor outcomes for different groups of consumers, including those in vulnerable circumstances, will need to do more to meet our expectations.”  

Reviewing vulnerability

A subsequent Dear CEO letter from the FCA raised the same issues and cited shocking findings from its recent wealth survey. It found that 49 per cent of portfolio managers and 69 per cent of stockbrokers identified no vulnerable customers. This is in spite of the fact that according to the FCA’s Financial Lives survey, as many as 50 per cent of the adult population will be classified as vulnerable.

As a result, the Dear CEO letter urged firms, particularly in this area to “…reassure the vulnerability status of your consumers based on our guidance”.

Shortly after, the FCA published its Regulatory Initiatives Grid for 2024. This is the programme of work the FCA has set for itself. Significantly, this includes: “Post-implementation review of the guidance for firms on the fair treatment of vulnerable customers.” This is due to start in Q1 2024, and the FCA aims to publish its report by the end of 2024. For this, the FCA will assess individual firms on how they are doing on vulnerability.

Next steps

In December, the FCA presented a webinar “Consumer Duty: The next steps” – clearly this was important, as over 6,000 registered to watch live – with many more having to watch the video at a later date, due to it being oversubscribed.

Managing consumer vulnerability was a major topic, featuring heavily during the session. David Geale, the FCA’s director of policy said that in its work, the FCA had found “weaknesses in frameworks and processes for identifying and supporting vulnerable customers”.

David said: “For example, an inability to track vulnerable customers, gaps in the services that were offered, challenges around the channels through which the support services were provided and gaps in data. That needs to be a really key consideration for firms going forward.

“If I were to call out one thing, I think we have seen some challenges in firms around meeting the previous vulnerability guidance and what the Duty programme has done is help them to highlight where those gaps are. The key now is to act on it.”

Geale highlighted consumer investment firms and the FCA’s evidence that vulnerability is viewed as “quite low priority” or not even considered at all. He said the FCA was “exceptionally concerned” that firms are not thinking “widely enough”, or taking the view that wealth cannot be equated with vulnerability, which Geale said: “we just do not think can be the case”.  

Other areas of poor practice highlighted was a “blanket approach” of automatically assessing all clients over a certain age as vulnerable, as well as asking consumers to self-identify vulnerability and provide evidence to back that up.

Be proactive

When asked to give one piece of advice, Kate Tuckley, the FCA’s head of department – consumer investments, said: “be proactive”.

“Don’t wait for us to intervene, we expect our firms to lead from the front. And we do see many firms being proactive, but we also see many waiting for us to act, to see which way we will move to address an issue. We do not think this is good enough.”

In simple terms, the FCA is saying that it knows that firms have not done enough on managing vulnerability, and they will be assessing firms in early 2024.

When most advisers begin using consumer vulnerability assessment software, such as the MorganAsh Resilience System (MARS), they begin with the assumption that they know their customers, but – within a few months – they discover significant information which they did not know. This leads to an improved understanding and the ability to adapt services and make changes. In turn, this improves customer relationships and helps to build loyalty.

Unfortunately, too many people underestimated the challenge of assessing and monitoring vulnerability – thinking it would be easy, but this is not the case. It requires software systems and processes to be done efficiently, and in many cases, a significant change in company culture. No one can say they haven’t been warned by the FCA. MARS solves the issue – and, for just over £300 per annum per adviser it’s an affordable, robust and quick solution.