Vulnerable Customers: taking stock of regulatory expectations

Who this blog is for

Board members, senior executives and those working in risk and compliance teams, particularly those involved in Duty compliance and the treatment of Vulnerable Customers (VC) across financial services firms.

At a glance
 

• Over the last two years, numerous FCA publications across all sectors include mentions of the treatment of VCs. Firms face a challenging task in consolidating and analysing this ever-growing corpus of information, including assessing how insights included in a sector-specific publication could or should apply to other sectors.
• This paper analyses 30 FCA publications that included material comments on the treatment of VCs, creating a consolidated database of VC-related rules, guidance, and expectations. We identified a total of 283 VC mentions and mapped them across 11 VC-related themes.
• The FCA is due to publish the findings from its review of the treatment of VCs next week. This paper provides insight and analysis to assist firms in their response to the review’s findings; the relevance of these insights will endure beyond the VC review as they capture regulatory content on VCs over the past two years and across all FS sectors.
• Further work, focusing on bereavement and power of attorney in retail banking, along with firm-specific feedback on VC identification for wealth managers, will conclude with findings to be published in H1 2025. These reviews set the stage for potential regulatory actions. Our research suggests that firms must move beyond basic definitions of vulnerability. This includes understanding the transient nature of vulnerability, leveraging granular VC data, and challenging established assumptions on VCs to ensure a nuanced and accurate identification process.
• If firms identify poor VC outcomes, the FCA expects them to move swiftly to adapting products and processes to mitigate or prevent VC harm. This involves tailoring products, services, and communications to make them accessible and understandable, while also fostering a supportive internal culture through strong leadership, staff training, and robust governance frameworks.
• Our research also offers a glimpse into the FCA’s future priorities. These include the lack of vulnerability considerations in closed products and services, flawed assumptions on disabilities, over-reliance on self-identification of vulnerability and concerns surrounding later-life lending.
• The content of this paper is a summary of the extensive body of FCA’s statements on the treatment of VCs. Firms should assess their current VC approach against the insights raised in this paper to identify potential areas of focus. For more information on self-assessing your VC framework, please click here .For an in-depth conversation about our consolidated research database, please contact the team.

Introduction & methodology

Firms’ treatment of VCs has been high among FCA’s priorities for several years. This is evident in the persistent focus on the topic across a range of publications and speeches. However, understanding FCA expectations in this area can be challenging for firms. Relevant guidance and insights are spread across numerous publications, making it difficult to form a consolidated, sector-specific understanding. This challenge is further amplified by the fact that insights and best practices from one sector's publications may be relevant for others, requiring a cross-sectoral perspective.

The FCA is expected to publish the findings of its review of firms’ treatment of customers in vulnerable circumstances next week. Additionally, further work related to VCs is planned, including a focus on bereavement and power of attorney processes within the banking sector. The FCA will also continue to engage and collaborate with wealth managers regarding VC identification, with the aim of publishing findings and feedback by H1 2025¹.

In our experience, reviews are often a stepping stone to further regulatory action depending on the nature and severity of the findings. The fair treatment of VCs requires a high degree of judgement, and the review findings will provide firms with the opportunity to assess the maturity of their VC frameworks against FCA expectations. This article and the underlying research database that underpins it aim to assist firms in this assessment by enabling efficient identification of points of regulatory concern, and areas where improvements is expected.

Methodology

We have conducted an analysis of FCA publications that include mentions of the treatment of VCs. We analysed 30 VC-related publications² – including multi-firm reviews, speeches, consultations and policy statements, final decision notices, webinar transcripts and portfolio letters – published in 2023 and 2024, as well as PS22/9, FG22/5 and FG21/1. We refer to this body of content as the corpus.

Figure 1: VC-related publications by type

The analysis consisted of identifying and extracting every paragraph where VCs were mentioned. Our analysis identified 283 VC mentions across the corpus which we then categorised into 11 themes across four key categories: Identification of VC, Measuring VC outcomes, Adapting products and services and Governance. Figure 2 shows how the themes relate to the four key categories.

Figure 2: Vulnerable Customer Framework

Getting the VC approach right: what are the key messages?

Figure 3: Distribution count of VC-related themes by category

Our research revealed that Identification has the largest number of entries (108) followed by Adapting (78). Mentions of Measuring (60) and Governance (37) are less frequent. The following section delves into the key messages and good practice examples identified within each category.

1. VC identification (38% of entries)

As mentioned by the FCA: “…the first, vital, step is identifying vulnerability…”³. Unsurprisingly, the Identification category has the largest number of entries with extensive FCA guidance for firms. This category comprises three themes:

• Indicators of Vulnerability: understanding the different ways customers might be vulnerable.
• VC Identification Process: internal approach used by firms to identify characteristics of vulnerability.
• Identifying VC harm: recognising a product or service that has a high risk of resulting in VC harm.

Our analysis revealed areas where firms are expected to improve their understanding of indicators of vulnerability. Notably, some firms have more work to do to tackle the pervasive and transient nature of vulnerability, particularly in cases of sudden life events or health changes. Firms should be aware that these events can lead to further vulnerabilities such as mental ill-health or low financial resilience⁴.

To bridge the identification gap, our research highlights the good practices that firms can consider. These include leveraging existing customer data, such as analysing trading patterns for potential vulnerability indicators⁵, or conducting targeted market research, such as surveys or focus groups, to understand how VCs prefer to communicate their needs⁶.

Beyond the indicators of vulnerability, firms need to have developed a robust internal system for the identification of VCs. Common pitfalls for firms in this area include applying a blanket approach (e.g. categorising all customers above a certain age as vulnerable)⁷, and informing self-identified VCs that their vulnerability restricts their access to firms’ services⁸. Firms need to challenge their established assumptions on VCs, ensuring that they are evidence-based and well documented. Firms may also wish to consider certain good practices such as the “tell us once” approach⁹, which minimises the number of times a customer informs the firm about their vulnerability or limiting the use of the “vulnerable” label on customers¹⁰.

Recognising potential and actual harm to VCs from unsuitable products or services is crucial for firms. For instance, short-term credit, often characterised by high fees, can disproportionately affect VCs compared to other customer segments¹¹. Additionally, creating unreasonable barriers, such as offering initial prices in anticipation of customer negotiation, can disadvantage VCs who may lack the financial knowledge or experience to challenge such tactics¹². To address this issue, early identification and regular internal reviews are crucial. Firms may wish to adopt good practices such as proactive data analysis in identifying VC harm in areas where there are patches of poor staff knowledge and performance¹³. This approach can help identify instances where, due to the staff knowledge gaps, VCs are not being matched with suitable forbearance options.

2. Measuring VC outcomes (21% of entries)

Once VCs are identified, firms are expected to measure, evaluate, and evidence they are receiving good outcomes. This category comprises three themes:

• Outcome testing: testing and evaluating if VCs are receiving good outcomes.
• Data and MI: building robust data sets, effectively tracking key metrics, and managing data privacy considerations.
• Continuous Monitoring and Improvement: the regular practice of reviewing customer data and comparing customer outcomes between customer groups.

While firms have made progress in demonstrating positive customer outcomes, our analysis indicates a clear shift in regulatory expectations. The FCA is increasingly emphasising the need for firms to go beyond general assessments and compare outcomes across different customer groups, with a focus on ensuring equitable outcomes for VCs. We see this messaging in several recent reviews such as Anti-fraud controls and complaints handling, Outcomes monitoring (Insurance), Consumer Duty Board Report findings, and Duty implementation findings. This necessitates improved and more granular data capture capabilities. Good practices include developing an enhanced MI complaints dashboard that has identification markers for VCs¹⁴ or conducting quality assurance on self-identified VC cases¹⁵.

Our research also reveals a focus from the FCA on the thoroughness of firms' outcome testing data, particularly for the entire customer journey. The FCA has highlighted instances where firms, while conducting outcome testing on individual customer interactions, failed to capture the full customer journey, potentially masking poor outcomes. Furthermore, the FCA was disappointed by the inconsistent application of SLAs on life insurance claims, which varied across service teams within the firm and those used by an outsourcer¹⁶. Firms should step back and ask themselves if their data metrics are not only specific, but sufficiently holistic to capture the entire customer journey. Both individual process metrics and end-to-end journey metrics are crucial in painting a holistic picture of whether the firm is delivering good VC outcomes¹⁷.

3. Adapting products and services (28% of entries)

Adapting products and services to support VCs is the next crucial step for which the FCA has set out expectations. This category had the second highest number of mentions and captures FCA expectations on how firms should adapt their products, services, communications, and customer support frameworks to ensure the delivery of good VC outcomes. The category comprises three themes:

• Tailoring: designing and delivering products, services, and communications suitable for VCs.
• Supporting Vulnerability: providing accessible, proactive, and responsive support channels that are tailored to VCs.
• Responsible product alterations and withdrawals: careful consideration of VC welfare when making changes or withdrawing existing products.

Supporting Vulnerability is the largest data theme within this category, and the FCA has outlined extensive expectations for firms in this area. Firms are generally expected to provide a range of support channels for VCs and demonstrate appropriate consideration for VCs characteristics in their engagement with customers. The FCA has cautioned firms that they will usually need to be able to provide support to VCs through different channels or by adapting their usual approach¹⁸. Good practice includes providing customers without a permanent address with alternative options for meeting identification requirements¹⁹ or turning off productivity metrics for staff when they identify that someone is vulnerable²⁰.

In terms of Tailoring, our research indicates that the FCA is particularly concerned by certain practices. Specifically, the FCA highlights firms’ tendencies to prioritise legal compliance over clear customer communication²¹ and a lack of consideration for how fair value assessments can identify unexpected consequences for VCs²². To address these concerns, the FCA recommends a more collaborative and proactive approach. This includes consulting with specialist consumer groups and third-party organisations during the design phase to ensure products, services, and communications are tailored to the needs of VCs²³.

4. Governance (13% of entries)

While Governance may have had the fewest entries as a category, it is nevertheless important. This category lies at the heart of the consumer-centric culture that the Consumer Duty aims to foster. This category comprises two themes:

• Culture and Leadership: crafting a workplace where senior leaders champion the fair treatment of VCs.
• Skills and Capabilities of Staff: equipping staff with the appropriate training, resources, and support to identify and respond to VCs.

From our research, we observe that the FCA is concerned with the inconsistent application of support options for VCs. For example, collections teams lacking awareness of the full suite of forbearance options available to VCs, leading to VCs not being offered the most appropriate support. Firms may wish to review their current VC framework to determine whether staff are equipped with the right knowledge and expertise to recognise and support customers with characteristics of vulnerability.

Beyond providing sufficient training for staff, a common issue across firms is the challenge of recruiting and retaining experienced support staff²⁴. In response, some good practices that firms can consider include reassessing remuneration packages, introducing upskill training schemes and designing new internal career progression programmes²⁵.

While fostering a supportive VC culture can be challenging, the FCA offers several suggestions to support this development. For example, firms could draw on staff diversity to gain insights into the needs of a diverse customer base (including VCs)²⁶. Senior leaders could also ensure that fair treatment of VCs is embedded in the firms’ policies and processes throughout the customer journey²⁷.

Anticipating regulatory spotlight areas

Our analysis further offered a glimpse into the regulator’s future priorities. These include, for example, flagging potential VC harm from certain products, services, or firms’ practices. Notably, 33% (10 out of 30) of these future priorities’ entries have already spurred supervisory action, such as upcoming reviews on bereavement and power of attorney in banking, claims handling in insurance, VC identification in wealth management, and a market study on premium finance.

Examples of areas that the FCA has flagged as being of concern but where follow-up work has yet to be announced include:

• the lack of vulnerability considerations²⁸ when assessing closed product books, despite their potential for a high concentration of VCs;
• the flawed assumption²⁹ that learning disabilities equate to an inability to manage accounts, leading to denial of services;
• the over-reliance on self-identification³⁰ of vulnerability, often coupled with demands for proof, and even denial of services based on such disclosures; and
• concerns surrounding later-life lending³¹, particularly complex products such as equity release mortgages, where customers are at heightened risk of vulnerability.

Joining the dots between sectors

Recognising the interconnected nature of customer vulnerability, the FCA has increasingly encouraged firms to draw upon insights and leading practices from across sectors. Our analysis includes references to many sector-specific reviews and publications that are highly relevant for other sectors. Below are two of the most notable examples.

Retail banks should reflect on the findings from the recent insurance sector review on bereavement claims processes. They should capture the full customer journey times in respect of bereavement processes or consider applying a “tell us once” approach (removing the need for customers to repeat distressing information to several call handlers).

Wealth managers will be well aware that the FCA has called out the sector when it comes to identifying VCs, with some firms in the sector arguing they have no VCs in their portfolios³². Wealth managers should consider how to develop their VC identification capabilities and might find the themes of "Indicators of Vulnerability" and "Vulnerable Customers Identification Process" helpful in doing so.

Conclusion

The regulatory literature surrounding the treatment of VCs is rich and deep. The FCA has clearly outlined its expectations on how firms should treat VCs. This note sets out some important considerations that firms should, at the minimum, address in their interactions with VCs. At the very least, firms should compare their VC policies and approach against the insights highlighted in this paper.

The insights presented here are a starting point. For a deeper analysis, tailored towards sector specific or firm needs, we invite you to engage with our team.

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References:

1. Source: Our Consumer Duty focus areas | FCA (December 2024)
2. We first selected a total of 44 FCA publications. Out of the 44, 30 publications included material content related to the treatment of VCs.
3. Source: Vulnerability is not a buzzword | FCA (October 2024)
4. Source: FG21/1: Guidance for firms on the fair treatment of vulnerable customers (February 2021)
5. Source: Consumer Duty implementation: good practice and areas for improvement | FCA (February 2024)
6. Source: FG21/1: Guidance for firms on the fair treatment of vulnerable customers (February 2021)
7. Source: Webinar transcript – Consumer Duty: The Next Steps (December 2023)
8. Source: Consumer Duty implementation: good practice and areas for improvement | FCA (February 2024)
9. Source: Vulnerability is not a buzzword | FCA (October 2024)
10. Source: FG21/1: Guidance for firms on the fair treatment of vulnerable customers (February 2021)
11. Ibid
12. Source: Findings of multi-firm review into insurers' valuation of vehicles | FCA (March 2024)
13. Source: FG21/1: Guidance for firms on the fair treatment of vulnerable customers (February 2021)
14. Source: Complaints and root cause analysis: good practice and areas for improvement | FCA (February 2025)
15. Source: Consumer Duty Board Reports: good practice and areas for improvement | FCA (December 2024)
16. Source: Findings of our multi-firm review of life insurers’ bereavement claim process | FCA (November 2024)
17. Ibid
18. Source: FG22/5: Final non-Handbook Guidance for firms on the Consumer Duty (July 2022)
19. Source: FCA strategy for Retail Banks in 2025 (October 2024)
20. Source: Webinar transcript – Consumer Duty: The Next Steps (December 2023)
21. Source: Webinar transcript – Consumer Duty: The Next Steps (December 2023)
22. Source: Thematic Review 24/2: Product Oversight and Governance thematic review – General Insurance and Pure Protection (August 2024)
23. Source: PS22/9: A new Consumer Duty (July 2022)
24. Source: Findings of our multi-firm review of life insurers’ bereavement claim process | FCA (November 2024)
25. Ibid
26. Source: Consumer Duty webinar – insurance – transcript (October 2023) and FG22/5: Final non-Handbook Guidance for firms on the Consumer Duty (July 2022)
27. Source: FG21/1: Guidance for firms on the fair treatment of vulnerable customers (February 2021)
28. Source: Consumer Duty Board Reports: good practice and areas for improvement | FCA (December 2024)
29. Source: UK Payment Accounts Access and Closures: Update (September 2024)
30. Source: Webinar transcript – Consumer Duty: The Next Steps (December 2023)
31. Source: Portfolio Letter: FCA strategy for lifetime mortgage providers in 2025 (October 2024)
32. Source: Vulnerability is not a buzzword | FCA (October 2024)