Firms must consider vulnerable customers when designing products: FCA



Firms must design products or services to take account of the needs, characteristics and objectives of all groups within the target market, according to the Financial Conduct Authority’s consumer duty rules. 

The FCA, which published the rules earlier today, extended the deadline for its implementation from 30 April 2023 to 31 July 2023. 

The new rules lay out the behavioural and administrative requirements for dealing with vulnerable customers.

The FCA states that it expects companies to consider whether a product or service has features that could risk harm to any group of customers, including those with characteristics of vulnerability.

However, the rules highlight that companies will not need to review the needs, characteristics and objectives of individual customers, to track the potential vulnerability of each customer or monitor the diverse needs of each customer.

But it does expect firms to take “active steps” to encourage customers to share information about their needs or circumstances, where relevant. The FCA says this will “practically help firms to understand the needs of customers in the target market”.

While the FCA will not expect firms to explore a customer’s circumstances “exhaustively” or to identify every customer with characteristics of vulnerability, it does ask firms to support their staff to identify signs of vulnerability.

It says this can be done through training and resources, and new systems and processes that enable customers to disclose their needs.

When designing products and services, the new rules ask firms to consider the needs, characteristics and objectives of customers with characteristics of vulnerability at all stages of the process, including idea generation, development, testing, launch and review, to ensure products and services meet their needs.

The FCA suggests various actions that can be taken to identify the needs of customers with characteristics of vulnerability in the target market such as holding focus groups or consumer representatives at the development stage to get a greater understanding of their needs and how products can meet them.

It also says firms can explore resources provided from, and consulting with, specialist organisations offering information on how needs can be met in the design stage as well as consulting with customers or representative groups when seeking to alter or withdraw a product.

The rules highlight that particular groups of customers may be more likely to have characteristics of vulnerability, including older people.

The FCA says there is also evidence that people with certain protected characteristics, such as disabled and minority ethnic people, are more likely to be living in poverty, which can be an indicator of vulnerability when interacting with financial services.

While a product or service might meet the needs, characteristics, and objectives of particular groups of customers, the rules state that firms “should not exclude them simply because they have characteristics of vulnerability”. 

The FCA says: “Doing so is likely to be inconsistent with our crosscutting rules, in particular, our requirement to act in good faith.”

Where distinct groups of customers within the target market sharing protected characteristics experience different outcomes from other customers from a firm’s products or services, the FCA says it expects firms to investigate the causes.

“Firms should satisfy themselves that different outcomes for different groups of customers are compatible with the firm fully meeting the standards required by the duty and, where relevant, the Equality Act or equivalent legislation, for all its customers,” it adds. 

In addition, the rules state that if evidence emerges that customers with a certain protected characteristic are “disproportionately experiencing harm, or vulnerable to harm”, the FCA says firms should consider this evidence, review their relevant conduct and assure themselves that they are compliant with the duty requirements and obligations under the Equality Act 2010.

The rules also require firms to undertake “appropriate testing” of products and services to assess whether the product or service will meet the needs, characteristics and objectives of its target market, including those that are vulnerable. 

In addition to considering what has happened in the past, to guard against the recurrence of previous problems, the rule state that firms should consider what might happen in the future. 

In terms of consumer research, the FCA has asked companies to solicit open feedback, which should be “fairly considered and acted upon”.

Commenting on the rules, Comentis chief executive and co-founder Jonathan Barrett says there seems to be “mixed messages” around identifying vulnerability. 

Barrett notes: “After all, how can a firm support vulnerable customers if they don’t know who they are in the first place?”

“We agree and celebrate the fact that the FCA has moved away from the concept of ‘average customers’ as this simply does not exist; every individual is unique and therefore so are their circumstances.”

“The existing Fair Treatment of vulnerable customers guidance is baked into The Consumer Duty and no matter how hard and complex it is, individual clients needs must be assessed and further support should be provided.”

“Without that, firms will be unable to understand their target market cohorts or adequately design products and services that serve their customers. They will also be unable to provide good outcomes across the board or demonstrate through data to the regulator that they are meeting the needs and providing good outcomes to everyone in vulnerable circumstances,” he adds.