BR Guide Second Edition

75 74 WORKING WITH VULNERABLE CLIENTS WORKING WITH VULNERABLE CLIENTS This list should not be considered exhaustive. For example, loneliness or isolation could also be considered a risk factor for vulnerability. The FCA expects firms to understand the nature and scale of drivers of vulnerability, as well as the impact of vulnerabilities, on the needs of consumers in their target market and customer base. As well as this, it is important to consider how vulnerabilities could affect customers' experiences and outcomes. Bearing in mind the age of the average BR client, some of these factors will be more common than others for clients looking to invest in BR. As people get older, they are more likely to suffer from physical disabilities, health problems and loneliness. The classic example of this is older investors getting left behind by new technologies and communication streams. The International Organization of Securities Commissions has noted that the growing use of online communications and digital disclosure was an additional area of risk for many senior investors, particularly for those who may be less technologically proficient or unaccustomed to receiving information in a digital format. Vulnerability is not always a permanent state. Clients can become vulnerable through a change of circumstance, and they can also move out of the ‘vulnerable’ bracket. Just because someone is potentially vulnerable, this does not mean that person is necessarily going to become vulnerable or come to harm. In the past, the FCA has noted that vulnerability may even be caused or exacerbated by the actions or process of firms. According to numerous reports, many clients would not classify themselves as vulnerable, or are not aware they are potentially vulnerable, even when this is the case. Therefore, advisers have a duty of care to watch out for signs of vulnerability. Have you considered... Is your target market more susceptible to certain types of vulnerability? Is the demographic of your firm’s client base linked with an increased likelihood of vulnerability? Does your firm have a high concentration of clients in ethnically diverse areas where English may not be their first language? If you offer focused advice for a particular demographic or market sector, what are the specific vulnerabilities your firm’s clients could be more exposed to? SOURCE: PFS Why It is Important The FCA has repeatedly stressed that ensuring vulnerable customers are treated fairly and sympathetically is an important cornerstone of its regulations, and it takes a dim view of advisers failing in their duty of care. Given how broad vulnerability is, thankfully the FCA has in the past said it recognises the challenge it can present for those it regulates, however this is unlikely to be an accepted excuse if an adviser is found wanting in its treatment of vulnerable customers. In July 2019, it released a consultation paper on Guidance for Firms on the Fair treatment of Vulnerable Customers. While the paper gives examples of good practice, and more depth on how Principles 2, 3, 6, 7 and 9 (PRIN 2, FCA Handbook) should be applied in relation to vulnerable clients, the guidance deliberately omits prescriptive requirements. This is to allow, “flexibility in the constantly changing environment for consumers and firms.” To some extent, this leaves firms to, “use their judgement about how they should treat their vulnerable customers fairly.” The FCA knows that firms want greater clarity around the topic, so one of the main aims of the consultation is to obtain feedback on whether the guidance, as part of the FCA’s regulatory framework, is sufficient to ensure firms take appropriate action to treat vulnerable consumers fairly, or whether stakeholders consider that additional policy intervention, such as additional rules, are needed. What is clear is that the FCA intends to use the guidance being consulted on in an enforcement context, “ for example to help assess whether it could reasonably have been understood or predicted at the time that the conduct in question fell below the standards required by the Principles. We take action against firms where there is evidence of actual or potential harm for vulnerable consumers. We can, and do, take action for breach of the Principles. The Guidance may therefore be a relevant factor in potential enforcement action where firms are failing to comply with their obligations under the Principles. ” SOURCE: GUIDANCE FOR FIRMS ON THE FAIR TREATMENT OF VULNERABLE CUSTOMERS, FCA, JULY 2019 PRINCIPLE 2: Skill, care and diligence A firm must conduct its business with due skill, care and diligence. PRINCIPLE 3: Management and control A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. PRINCIPLE 6: Customer's interest A firm must pay due regard to the interest of its customers and treat them fairly. PRINCIPLE 7: Communications with clients A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading. PRINCIPLE 9: Customers: relationships of trust A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement. THE PRINCIPLES FOR BUSINESSES UNDERPINNING THE FAIR TREATMENT OF VULNERABLE CUSTOMERS