The FCA & Vulnerability 

This July, the FCA has published its long-awaited Guidance Consultation and feedback statement:  Guidance for firms on the fair treatment of vulnerable customers (GC20/3).  For experienced ValidPathers, with an appetite for the latest seasoned and tenderised dollops of regulatory guidance, you might just want to cut to the chase and take a look at our topical update.  [Plot spoiler alert:  this is not exactly going to rock your world, but it is going to require some attention].

GC20/3 is a typical example of the kind of genre that the FCA now excels in.  It does contain material that is (a) relevant, and (b) has value, but this is buried within a torrent of self-referential puff, 108 pages of the stuff.  To extract the useful, you have to develop the skills and perseverance of a late 19th Century gold prospector in the Yukon.  Or, you have to be someone with low self-esteem and very little other purpose in life.

Ideologically, GC20/3 is a product of the current culture.  Whereas IFAs have traditionally sought to view each client as a unique individual, with their own set of distinct circumstances, needs, aspirations and preferences, the new guidance encourages us to view 'vulnerable consumers' as a particular class, one with particular characteristics and rights.  We are, within this paper, encouraged to see whether a given individual fits into this class, a distinctly mechanistic kind of pigeon-holing, and one which sits uncomfortably with an advisory approach which genuinely seeks to build relationship, to know the client as an individual.  Perhaps this is a byproduct of the FCA's view of our clients as consumers, the kinds of entity that graze indiscriminately on financial products, in a bovine, herdish, kind of way.

Either way, the concept of vulnerability is a useful and a necessary one.  Thankfully, the FCA seems to have abandoned the idea that you can dissect the population into distinct groups, according to whether they are 'vulnerable', 'potentially vulnerable' or 'not vulnerable'.  I have been tempted to add a fourth category, 'invulnerable', in case you have Marvel Superheroes as clients.  Instead, the FCA views vulnerability as something of a spectrum - we may all be on it, at some point, depending upon the vicissitudes of life, and we may move about on the spectrum, depending upon how much stress we are placed under.  According to that kind of understanding, IFAs are highly vulnerable, as evidenced by the kind of systemic risk introduced by regulation.

Of course, once you have lumped people into a particular kind of category (the FCA reckons that 46% of the UK's adult population should be designated 'vulnerable', and that's before COVID wreaked its peculiar magic on the nation's finances), then it's a mere hop, skip and a jump to estimate how much all of this is going to cost.  You may be interested to learn that the current cost of catering for vulnerable customers (sorry, I just can't use the consumer word any more) works out at £1.4 billion annually.  On top of that, the FCA estimates that the additional cost of complying with their proposed enhanced regime is £709.6m initially, followed by £448.1m annually.  Given that the very nature of the 'vulnerable' designation implies that these folks are least able to bear additional charge burdens, it just begs the question of where all this money is coming from.  Quite.

Intriguingly, a little later in GC20/3, when we come to 'Costs to the FCA', the text reassuringly confirms that "We do not anticipate a significant increase in costs for the FCA".  Those significant increases are going to come from somewhere else!

I may have a few reservations about this latest paper, but that doesn't mean that we don't take the issue seriously.  ValidPath Members will want to note the following:

  • At the end of 2019, we augmented our primary client-management system, to ensure that vulnerable clients must be identified, and the reasons for this identification provided;
  • A strong and historic emphasis on TCF (if all clients are treated fairly, irrespective of capacity or circumstances, then this helps reduce the overall risk of detriment);
  • A continually updated page on TCF & vulnerable clients;
  • A consistent emphasis on the primacy of ethics.
These resources are a product of settled historical view of these matters, and they are effectively a byproduct of the ValidPath DNA.  Our ongoing and future emphasis on open banking and on dynamic data means that we are continually exploring ways in which we can intelligently  exploit systems in order to flag up specific instances or moments of client vulnerability.  There will no doubt be much more to say on that subject!


Kevin Moss, 30/07/2020