Compliance Matters: 30th August 2024

After a couple of weeks away, my compliance blog returns.  Here are some of the regulatory issues that have come across my desk from my various industry news feeds.

Please share this blog with your colleagues and with your network.

·         Another look at vulnerability

·         FCA calls on insurers to ensure they demonstrate fair value and good customer outcomes

·         The role of T&C in a modern financial services company

Another look at vulnerability

The FCA published Occasional Paper number 8 in February 2015 to stimulate debate and interest around consumer vulnerability.  Firms took notice but did not put fair treatment of vulnerable consumers front and centre of their thinking.  Nearly ten years on and the regulator made good outcomes for vulnerable clients a benchmark of how firms are implementing the Consumer Duty. 

In March of this year, the FCA kicked-off a review of firms’ treatment of customers in vulnerable circumstances, the results are due by the end of the year.  We expect to see examples of good and poor practice and I will report the findings when they are published.  No new regulation has been introduced to date, however, with customer outcomes now so high on the FCA’s priority list, it is safe to say poor practice could well lead to enforcement action.

This is a topic I have discussed before but, how do you identify if a client has vulnerabilities and how do you assess the support they require?

Unlike Paddington Bear, people with vulnerabilities do not come with a label.  In fact, they might not even recognise they are vulnerable.  Regardless of their own perceptions, you have a duty to identify and protect a vulnerable client.  Importantly, you must demonstrate that you ensure you deliver a good outcome for them and provide appropriate support.

As you are aware, the FCA defines a vulnerability 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.”

Being defined as vulnerable does not necessarily means that a person will suffer because of your advice. In many situations, the outcome for your client will be quite the opposite, you may prevent the client from suffering foreseeable harm and help them achieve their financial goals and objectives.

Vulnerability has many characteristics, and it is important to remember it is a fluid state and can be temporary, sporadic, or permanent. You may have long-standing clients whom you know very well, the following may be indications of a client beginning to show some characteristics of vulnerability:

Behaviour: has their behaviour changed in a way that concerns you.

Remembering: does your client not remember things you expected them to.

Understanding: are there signs that they do not understand what you are telling them in a way they once did.

Communication: how is your client communicating with you, are they able to.

Evaluation: can your client process the information you are giving them in a way you are used to.

The following list gives you some of the signs to consider when working with new clients:

A windfall (e.g. inheritance) giving the client access to wealth they are not used to dealing with;

Low literacy, numeracy, and financial capability skills;

Physical disability, for example, you may need to provide written communication in a large font, or even on A3 paper;

Diagnosis of a severe or long-term illness;

Mental health problems, including common mental health disorders;

Low income and/or debt;

Caring responsibilities, including acting on the instructions of a Power of Attorney;

Being young and potentially less experienced of dealing with investment, which may be relevant if you have been introduced to the adult children of an existing client;

Changes in circumstances, for example, redundancy, bereavement, or divorce;

English as a second language;

Non-standard requirements or credit history.

Remember, no personal circumstances are the same and vulnerable clients should always be treated as individuals. Remember to record the vulnerability on your back-office system and keep it updated when your client's circumstances change.

Knowing the characteristics of vulnerability is not enough.  You must ensure your firm has a strategy in place to support vulnerable clients, and that all relevant staff are aware of the support available, and they are provided with the appropriate training.  

Although frontline staff do not need to be experts on vulnerability, they are crucial to a client’s experience, so some level of expertise is beneficial, and they should know who to turn to for assistance.  For instance, do you have a member of staff that is trained as a dementia friend?

Advisers, however, are expected to be able to spot and respond to vulnerability, whilst having the freedom to handle each case as you see fit.  This can be achieved through training and if you do not feel you have the knowledge currently, it is perhaps an area to focus on during your CPD.

A lot of the information you need to assess vulnerability is a standard part of the advice process. When collecting and recording this data, you need to consider how it could impact on the client’s ability to interact with you and therefore, what action you need to take to ensure good outcomes.

Compliance Matters UK Limited can assess how you record client vulnerability and provide appropriate training, please contact us for further support.

FCA calls on insurers to ensure they demonstrate fair value and good customer outcomes

The FCA has published a thematic review in respect of general insurance and pure product governance.  Firms should manufacture and distribute products that deliver fair value to customers.  One of the conclusions of the review was that the FCA is disappointed to see many insurance firms are not fully meeting their product governance obligations.

Many manufacturers are not adequately assessing and evidencing that their products deliver fair value and good outcomes.  This means firms are not identifying any instances where their products are not delivering fair value for customers.

Most distributors do not fully understand their responsibilities to consider their remuneration, its interaction with the services and benefits they provide, and its impact on the product’s value.

These failings can lead to harm as the FCA highlighted in its latest Value Measures publication and through its intervention on GAP insurance.

The Thematic Review TR24/2 can be read here.

The role of T&C in a modern financial services company

In a recent article published by WorkSmart, Nic Dent considers the difference between training and competence.  He argues that training, in its true form, is an environment in which people are not only presented with knowledge but are provided opportunity to practice techniques to acquire skills, too.  A class in which the participants do nothing except listen to an instructor or teacher may be educational, but it is not training.  There must be the acquisition of skill, not simply knowledge.  It is important to remember though that a trained person is not necessarily a competent person.

Competence can be effectively summarised as the combination of training, skills, experience, and knowledge that a person has and their ability to apply those attributes to perform a task effectively. 

Then there is the difference between skill and competence.  Think about knowledge as an understanding of what needs to be done, then skills are how to do it.  Some skills come naturally; others must be learnt.  Even skills that we already possess can be improved, sharpened, and enhanced.

One of the key advantages of a T&C scheme is the opportunity it affords to provide individuals with feedback through observation and supervision.  It also provides opportunity for objective feedback too — particularly about how trainees are applying their knowledge in practice, during the sales process, or whilst fielding a complaint, for example.

The regulatory landscape has never been so complex, and the pressure on staff to learn and retain what is trained – and to individually translate this into in-role competence – currently seems limitless and somewhat daunting.

Compliance Matters UK Limited has access to the Skillcast platform as is able to offer a comprehensive, cost-effective T&C regime for your firm.

How can we help?

It is important that you have robust policies and procedures to ensure your firm delivers industry best practice and good consumer outcomes.  If you would like Compliance Matters UK Limited to review your compliance systems and controls, schedule a free, no-obligation consultancy call with us today. 

To learn more about how Compliance Matters UK Limited can support your firm, click here. 

To learn more about our T&C Support, including access to the Skillcast platform, click here.