The collections and recoveries industry has come a long way in ensuring the fair treatment of customers since the financial crisis hit over 10 years ago. It is, however, an ever-evolving cycle of evaluating, learning and improving processes to ensure that the customer always remains at the centre of all policies and practices.
This is made more complex when considering the treatment of vulnerable customers, an area which the Financial Conduct Authority (FCA) has recently issued a proposed guidance to firms.
This blog will explore their initial guidance, consider how it will affect collections and recoveries, and outline how you can have your say to shape the final version.
What is the FCA’s new guidance?
The FCA see the fair and consistent treatment of vulnerable customers as something firms should be doing already so they don’t view their proposed guidance as creating additional legal or regulatory obligations or sector specific rules. Instead, they see this document as further direction on a course of actions that should be taken in order to comply with their existing guidance (we counted 144 suggestions throughout the document).
On the 23rd of July, as the first stage of a two-stage consultation approach, the FCA issued a proposed guidance on firms’ treatment of vulnerable customers. Although building on existing expectations, it is fair to say that the guidance is a landmark document in assisting firms in developing or validating policies and practices relating to the fair and appropriate treatment of vulnerable customers. Their aim is to ensure total consistency of treatment across the industry (bearing in mind the nuances of the different sectors), and that organisations embed this way of thinking into their culture.
The FCA has recognised that the majority of organisations want to do the right thing and significant progress has already been made, but also that there is still room for improvement and for a greater degree of consistency across the various financial services sectors. The draft guidance sets out the FCA’s view, under the Principles of Business, on what firms should do to ensure vulnerable consumers are treated fairly and consistently.
The proposed improvements within collections and recoveries are outlined as follows:
- Organisations should have an understanding of the individual needs of vulnerable customers by ‘knowing’ the drivers, understanding the impacts and the potential harmful outcomes.
- Organisations should be undertaking a set of actions to ensure we meet those needs and provide experience and outcomes that are at least as good as those of other customers.
- Organisations must evaluate and continually improve the way they treat vulnerable customers.
How can you start making changes now and get ahead of the curve?
Depending on the sector you operate in, you will need to understand the needs of your vulnerable customers and decide how to achieve the right outcomes. We encourage you to read the guidance and start taking interventions now to introduce further improvements, rather than waiting for the finalisation of this new guidance process.
You may recognise the types and transient nature of vulnerabilities and the required activities, such as having skilled and empowered staff who are able to break out of the norm where vulnerable circumstances exist, but are there gaps that still exist within your function?
Consider the following:
- Do you have a pro-active understanding of ‘potential vulnerability’ within your customer base versus reactionary processes to ‘actual vulnerability’?
- Do you recognise all the drivers of vulnerability?
- Do your processes, treatments and communications meet the needs of all potential and actual vulnerable customers?
How can you feedback to the FCA?
The initial guidance is a draft and the FCA is looking for feedback by 4 October 2019 on the below three areas (with 18 questions to guide comments):
- Does the draft guidance cover the right issues, and would it provide you with the right degree of clarity on what you should do to improve outcomes for vulnerable customers?
- How would this guidance affect your costs and what could the extent of benefits to vulnerable customers be from changes triggered by the guidance?
- Is this guidance enough to ensure you take appropriate action to treat vulnerable customers fairly, or do we need additional policy interventions or rules to ensure this happens?
Following this initial period of consultation, a second stage revised draft will be issued, together with a cost / benefit analysis. It will be interesting to see this type of analysis and how it will help to approach of vulnerability.
In our role as consultants, we work across multiple industry sectors and we have seen first-hand the good work undertaken by the financial services industry so far, but this guidance from the FCA is a clear sign that more needs to be done. They are leading the way from a regulatory perspective for financial services and it is only a matter of time before other industries follow suit.