Vulnerability in Financial Services


Just under half of UK adults, aged 18 or over display at least one characteristic of vulnerability. That’s according to the findings of the FCA’s Financial Lives Survey and it equates to 24.1m consumers.

The FCA believes that the COVID-19 pandemic and its fallout will increase the number of people displaying the characteristics of vulnerability over the coming months.

It is in this context that the FCA has increased its focus on vulnerable consumers and is taking significant steps to ensure that regulated firms deliver products and services that are suitable for these consumers.

The FCA’s Principles of Business require regulated firms to treat all customers fairly and its latest guidance is clear; “all consumers are at risk of becoming vulnerable”.

As the FCA continues to consult the financial services industry on its guidance in relation to vulnerable consumers, the onus is increasingly on firms to deliver on the requirements within.

Below, we go through some of the key considerations firms will need to take in order to take care of all consumers and those susceptible to the characteristics of vulnerability.

What is the FCA definition of a vulnerable consumer?

A vulnerable consumer is “…someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.”

What are the key drivers of consumer vulnerability?

The FCA has identified four key ‘drivers’ of vulnerability in consumers:

  1. health – disabilities or illnesses that affect the ability to carry out day-to-day tasks
  2. life events – major life events such as bereavement, job loss or relationship breakdown
  3. resilience – low ability to withstand financial or emotional shocks
  4. capability – low knowledge of financial matters or low confidence in managing money (financial capability) and low capability in other relevant areas such as literacy, or digital skills

What is the ‘spectrum of risk’?

All consumers exist on a spectrum of risk in relation to vulnerability. At one end of the spectrum are consumers who do not display characteristics of vulnerability. At the other end are consumers who display multiple characteristics of vulnerability and are, as such, at risk of significant harm.

The FCA has developed the ‘spectrum of risk’ in response to confusion around how to classify consumers as vulnerable or not.

The overarching theory around the spectrum of risk is that all consumers are at risk of vulnerability and some can move into a position of vulnerability through life changes.

What potential harms can impact vulnerable consumers?

Whilst there are many potential harms, the FCA has provided some examples:

  1. Financial exclusion
  2. Difficulty assessing services
  3. Disengagement with the market
  4. Inability to manage a product or service
  5. Over indebtedness
  6. Buying inappropriate products or services
  7. Scams and financial abuse

Has the FCA set minimum standards for serving vulnerable consumers?

No, the FCA has not set any minimum standards as it would rather avoid “the unintended consequence of ‘levelling down’ in some sectors due to the differences in services offered, firm size and customer base.”

The FCA has chosen to discourage what it calls a ‘tick-box’ approach in favour of encouraging regulated firms to consider their target market and suitable practices, culture and policies.

What is the scope of vulnerable consumers?

All of the guidance published is in reference to ‘natural persons’; “[this] includes individuals and also business customers, where businesses are not incorporated.”

What must regulated financial firms do to protect vulnerable consumers?

According to the latest guidance published (GC20/3), firms must:

  1. Understand the needs of their customers
  2. Ensure staff has the necessary skills and capability
  3. Design products and services that protect vulnerable consumers
  4. Provide customer services functions that assist vulnerable consumers
  5. Monitor and evaluate performance and compliance

The guidance published requires firms to continually monitor performance, identify new customer needs and adapt processes and policies to suit.

Update 21/08/2020 – This is a working document and we will update it with new information and guidance relevant to marketers working in financial services over the coming weeks and months.