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#Governance, Risk and Compliance

Vulnerable Customers and Conduct Risk

International Compliance Association

banks , conduct , customers , risk , SMR

The Telegraph wrote an article this week entitled “Banks ordered to treat vulnerable customers with empathy, which looked at a problem that exists in banking where vulnerable customers are still being treated poorly.

The poor treatment of vulnerable customers is a real hot topic at the moment, and it may come as a surprise to some that this area is still grabbing the headlines.  For a decade or more Treating Customers Fairly (TCF) has been promoted by the UK regulator as the approach that all firms must take to show consistently that fair treatment of customers is at the heart of their business model.  The Telegraph has shown that, a decade on, banks are still struggling with this concept. 

Some of the examples the article highlighted made for a distressing read; e.g. a man unconscious and dying from cancer almost had his life insurance policy cancelled because of missed payments, despite the bank being told of the customer’s condition; another case found a bank had failed to identify a customer as vulnerable, he was in poor health and on benefits, despite this they left him without food after taking all of his available cash to pay for overdraft charges.

The role of the conduct and culture agenda                                                       

What does conduct risk have to do with this?  To answer this, let’s look at what the conduct and culture agenda is attempting to achieve.  Its aim is to build a culture within financial services organisations that promotes actions and behaviours that will meet customer objectives, support good market conduct; and allow a customer to enjoy a positive experience when dealing with the firm.  There’s clearly still a long way to go in meeting customer objectives if the Telegraph’s article is anything to go by.  One explanation for why some customers are being failed in this way could be that conduct risk, although the responsibility of everyone to manage, has only really reached the higher echelons of the governance structure within many financial institutions.      

There is, however, some evidence that shows good conduct, particularly in banking, is moving in the right direction.  Recent announcements by some CEOs of large banks to forgo some significant bonus payments in a bid to set the right tone, is an example of this progress.  The Senior Managers and Certification Regime (SMCR), due to go live next month, will further cement the activities and behaviours that promote good conduct by formalising the responsibilities of key personnel within a banking organisation.  But it will take time for this good conduct approach to trickle down to those individuals on the front line, those whose day to day activity includes direct contact with customers – with vulnerable customers in many instances. 

A look ahead

The people caught under the SMCR will take their new responsibilities very seriously, training their teams and staff members, some of whom will be working directly with vulnerable customers, will become part of the new regime.  The actions and behaviours required to display good conduct and promote the right culture will filter down to all staff, and eventually the joined up approach will result in all customers, especially those considered vulnerable, receiving a product or service that is suitable to their needs and circumstances.

The banks will get there, the only question is how long will it take?  And more importantly, how many more vulnerable customers will have to suffer like the ones highlighted in the Telegraph’s article before the banks get it right?  For the sake of these customers, it’s important that articles like this continue to expose such outcomes.  The industry should be reminded of its flaws, of where it is still failing, to keep the pressure on and to ensure we reach our goal sooner rather than later.

Our new online qualification, the ICA Specialist Certificate in Conduct Risk focuses on this in more detail. This will be available to enrol onto in March 2016.

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