Why Boards and Senior Executives Must Take Action Now
The FCA’s Occasional Paper 8 regarding ‘Consumer Vulnerability’, which was published in February 2015, is an early warning to Boards, senior executives and senior retail banking leaders of the significant rise in expectations for their treatment of customers.
If the banks don’t change their policies and practices in this area, the regulators could take enforcement action in the very near future. In this article we examine the key themes and practical challenges which arise from the occasional Paper, and why firms must take action now.
Having received limited media coverage, and with a somewhat theoretical tone, it is all too easy for this emerging risk to be relegated to the ‘later’ section of an already all-too long priority list. But that would be a big mistake, as this is an issue which is being given significant thought and attention by the FCA. It is currently developing a regulatory, supervisory and enforcement approach to protecting vulnerable consumers that will enable it to take action against culpable firms very soon. To date, it has already issued at least four Enforcement Actions which referred to the treatment of vulnerable customers, and vulnerable consumers featured prominently in the FCA’s 2015/16 Risk Outlook.
Consequently, vulnerable customers are likely to be a significant political, regulatory and reputational issue in the coming months and years, with the very real prospect of fines and the need for delivering large-scale remediation programmes (after the PPI and Swaps scandals). Firms need to focus now on what they need to do, and how they can incorporate this emerging risk into their existing regulatory change management and conduct risk agendas. If firms delay any longer, in order to ‘finish their current conduct projects’ (as several firms have told us) then this will inevitably result in unnecessary expense and even greater project fatigue.
In its simplest form, firms will need to establish systems and controls that identify vulnerable customers and provide evidence that their needs are being taken into account. This means demonstrating that all conduct risks for these customers are being effectively managed and mitigated.