Vulnerable Customers: The new hot topic

Written by David Jackman on Wednesday September 11, 2019

‘Vulnerable Customers’ is not a topic you can avoid if you are a compliance professional in the retail sector. While the UK may be leading in the implementation of new requirements, many other jurisdictions are incorporating or considering the principles involved. These principles are pretty much incontrovertible and so there is inevitable pressure and momentum behind development of this area.

The reasons why vulnerable customers is a hot topic are:

  • It is one of the first areas to give definition to the application of outcome-based regulation and compliance.
  • It is particularly important because it shows us the way the nature and focus of regulation is now developing.
  • How compliance deals with its most ‘at risk’ clients is a good indicator of the overall health and effectiveness of the compliance culture of the firm.
  • Boards tend to have a greater interest in this segment of the client base and can relate the issues directly to reputational risk and their actual or forthcoming SM&CR responsibilities.
  • Vulnerable customers pose a particular challenge for FinTech companies at any firms using algorithms to identify categories of customer and compliance risk.

Who are vulnerable customers?

FCA defines a vulnerable consumer as 'someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care'.

Examples of vulnerability include more obvious categories such as those who are potentially vulnerable because of some form of recent distress such as bereavement, divorce or have lost their job, and then, there are those who might be vulnerable by virtue of their mental incapacity or addiction or limited financial capacity or resilience.

"Other vulnerabilities may result from the stage in their lives, either younger customers or older with special needs."

As this list shows (and it is not exhaustive), there are many different considerations to be taken into account, and some vulnerability may be contingent on other financial matters, over which the firm has some control, such as levels of debt, and some vulnerability can be temporary, such as an income shock, and therefore categorising any customer as a ‘vulnerable customer’ needs to be appropriately and regularly reviewed and may not be a long-term position.


Compliance approaches to vulnerable customers

1) The first stage is for compliance primarily to identify who should be classified as vulnerable customers and what their needs are. This is not easy because there’s a limited number of questions you can ask. Also, any classification will need to be reviewed regularly.

It might be typical for a firm to have typically around 7-10% of its customers classified as vulnerable.

2) Ensuring dealing with vulnerable customers appropriately is the next step for compliance and needs a wide range of ‘reasonable adjustments’ and support for each category of vulnerability, once correctly identified.

This may include different methods of communication, longer timelines, specialist advisors, different terms and conditions, and enhanced reporting and monitoring MI for compliance, risk and the board.

3) FCA is very clear that they are not looking for another tick box approach (and, it should be noted, that there is a degree of consumer responsibility to bring into the equation). This is about dealing with individual human beings and dealing with them sensitively.

This poses very real business problem for FinTech companies or any organisations using algorithms or digital services, for example, where there will be a cost pressure to maximise return from investment in technology that will naturally run contrary to any compliance system to ensure the referral of special need customers to a ‘human interventions’ i.e. usually talking to an advisor (which costs money).

De-risking by not taking on vulnerable customers risks infringing competition rules and FCA’s access concerns.

4) All staff will need some form of additional training to identify vulnerable customers, while specialists will need in-depth education.

There are other areas of legislation that need to be taken into account and a range of current relevant research, so there is a need for a breadth and depth of specialist compliance knowledge.

Wider implications

According to FCA, 50% of UK adults display one or more characteristics of being potentially vulnerable at some stage, with vulnerable consumers being more likely to experience harm.

For example, 23% of people with mental health problems avoid switching because they find it overwhelming so they are more likely to be trapped in an unsuitable product or service.

"Half of adults in problem debt also have a mental health problem and people with mental health problems, for example, are more likely to have mistakenly bought a product on credit and 3 in 4 of those felt pressured into doing so."


Regulators everywhere increasingly focus on impact and outcome and these are the strongest criteria of compliance success. Boards are beginning to understand the significance of the regulatory and reputational risk that is associated with getting this area wrong.

Mistakes here will be hard to recover from. And a good approach has benefits in terms of building a wider compliance culture and retaining staff.

About the author: David Jackman is chairman of Profile Pensions Ltd and co-chair of Pay Plan Ltd.He was previously a regulator for 12 years on T&C and ethics. He is a tutor and examiner for ICA. 

To find out more about our masterclasses on vulnerable customers click below.

Elderly people are a common type of vulnerable customers. More information about the different types of financial abuse that can be inflicted upon the elderly and how to detect it can be found here


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