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Consumers in vulnerable circumstances

Identifying and protecting consumers in (or potentially in) vulnerable circumstances through tailored and responsive solutions

There is an increasing focus to protect consumers in vulnerable circumstances in the financial service sector. This expectation is now set out in industry codes (i.e. the Banking Code of Practice, the General Insurance Code of Practice and the Life Insurance Code of Practice), which all refer to a commitment to take “extra care” or provide “additional support” for consumers experiencing vulnerability.

What are vulnerable circumstances?

The definition of vulnerability has received attention in recent years with the Financial Services Royal Commission highlighting that the traditional definition of a vulnerable consumer has changed.

No longer are age, disability and literacy considered the only vulnerable indicators, there is now also an emphasis placed on geographical location, addiction, financial literacy and unexpected life events such as a bereavement.

The Financial Conduct Authority in the United Kingdom defines a vulnerable consumer to mean ‘someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care’.1 This definition has been utilised by the Financial Markets Authority in New Zealand and, most recently, was recommended to be adopted in the Banking Code of Practice.2 The final report of the Independent Review of the Banking Code of Practice 2021, identified that while some customers may be more likely to be vulnerable, it is important for banks to be alert to the circumstances of each and every customer when identifying vulnerability.

In a speech in 2020 ASIC Commissioner, Sean Hughes, acknowledged the concept of vulnerability had changed, noting “any individual can experience vulnerability as a result of any number of factors”. He particularly identified that the toll of 2020, and COVID-19, was not only financial but caused “emotional and cognitive strain too”.3

What’s next?

In 2021, several reforms went live for financial services organisations including the design and distribution obligations, breach reporting, hawking prohibitions, internal dispute resolution and deferred sales model for add-on insurance products. With all the effort to implement this amount of regulatory change, it is important not to lose sight of the ultimate purpose of these reforms – to support fairer outcomes for consumers including those who may be vulnerable.

In 2022, we expect the impact of lockdowns, quarantine and social isolation will continue to be felt, with more consumers potentially experiencing greater vulnerabilities. In order to prepare for the new year (and new normal), organisations should enhance their consideration and preparedness of vulnerability within their own business and of their consumers.

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