A recent report estimated that 27.7m UK adults could be considered to be living in vulnerable circumstances, an increase of 15% in just a few months, with 2021 expected to show a further increase. This equates to 53% of the UK adult population – i.e., more than half.

Who are the vulnerable customers?

A vulnerable customer is someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care. 

The FCA expects firms to demonstrate how they are ensuring vulnerable customers are treated fairly. This includes recording and monitoring to ensure the service provided to vulnerable customers is as good as those provided to other customers.

What is a vulnerable customer example?

Being vulnerable is not necessarily a life-long state: it can be long term, short term, or permanent. Vulnerability drivers could include the following examples:

  • Health – health conditions or illnesses that affect ability to carry out day-to-day tasks.
  • Life events – life events such as bereavement, job loss or relationship breakdown. 
  • Resilience –low ability to withstand financial or emotional shocks. 
  • Capability – low knowledge of financial matters or low confidence in managing money

Who do the FCA consider to be particularly vulnerable?

Certain life events can trigger additional or increasing vulnerabilities. Consumers who already have lower financial literacy or capacity may be even harder hit and unable to manage their finances.

How do you assist vulnerable customers?

You need to understand your customer base and target market so you can correctly identify potentially vulnerable consumers and those who are more likely to require support.

For example, if you advise on pensions or life insurance, your customer base is likely to be older. You must be more alert to signs of illness or disability. 

You must also be aware of how your actions or inactions could increase vulnerability and cause harm. For example, not offering a customer who loses their source of income appropriate forbearance measures could lead to greater stress and anxiety, which in turn leads to the customer taking actions which are more harmful such as borrowing more to cover shortfalls.

The FCA expects your firm to have procedures in place to identify vulnerable customers, including if they access your services digitally, and to know how to respond appropriately.

VinciWorks new course: Vulnerable customers in financial services

Our new course, Vulnerable Clients in Financial Services, teaches users what makes people vulnerable, what the signs and characteristics of vulnerability are in specific target markets and customer bases, and how to provide an appropriate level of care to vulnerable customers.

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The Joint Money Laundering Steering Group has produced guidance on the prevention of money laundering for the UK financial sector.

What is JMLSG Guidance?

JMLSG’s Guidance is aimed at both firms: (i) in sectors represented by its members (comprising a number of UK Trade Associations) and (ii) regulated by the Financial Conduct Authority (FCA). 

There are a plethora of ways the guidance can assist those in the financial sector. However, two key areas are: providing an overview of the requirements for undertaking risk assessments and CDD. 

AML risk assessments 

Chapter 4 of the guidance is entitled the “Risk-based approach”, and sets out an overview on how to comply with certain obligations, such as: 

  • Identifying and assessing the risks of money laundering and terrorist financing which a business is subject to
  • Putting in place appropriate systems and controls to reflect the risks identified 
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Preparing for a new era in financial compliance with Sarbanes-Oxley (SOX)

In March 2021, the UK’s Department for Business, Energy and Strategy (BEIS) launched their much anticipated consultation: “Restoring trust in audit and corporate governance.” This consultation followed three significant reports into the operation of the UK’s financial services industry: the Sir John Kingman’s review, the Sir Donald Brydon review, and the CMA’s statutory audit market study. 

In short, the consultation seeks to introduce a strengthened internal controls regime, similar to the Sarbanes-Oxley rules in the US which require directors to attest to the effectiveness of internal controls over financial reporting.

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The Payment Services Regulations 2017 (the ‘Regulations’) apply to banks, building societies, card issuers, and other firms which provide payment services. These are the services set out in the Regulations and summarised on the FCA’s website, and include payment initiation services, account information services and services which allow cash to be paid into (or withdrawn from) payment accounts, amongst others. One of the requirements for firms governed by the Payment Services Regulations is to “provide to the FCA statistical data on fraud relating to different means of payment”.  

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What is Professional Liability Insurance (PII)?

Professional liability insurance, also known as errors and omissions (E&O) insurance, is a type of coverage that protects professionals and organisations from liability claims arising from their professional services or advice. It provides financial protection for legal defence costs, settlements, or judgments if a client alleges that the professional’s actions, advice, or negligence caused financial loss or harm. This insurance is essential for professionals across various fields, including medicine, law, accounting, architecture, engineering, consulting, real estate, and technology, as it safeguards their assets and reputation from the potential financial consequences of lawsuits or claims related to errors, omissions, negligence, or breaches of duty in their work.

What does Professional Liability Insurance cover?

Professional Indemnity Insurance (PII) covers organisations for compensation claims made by clients or other third parties. The FCA explains

“Professional indemnity insurance (PII) is liability insurance that covers firms when a third party claims to have suffered a loss, usually due to professional negligence.”

Professional Liability Insurance typically covers the following aspects: Professional Negligence, Legal Defence Costs, Errors and Omissions, Breach of Confidentiality, Libel or Slander, and Legal/Regulatory Compliance.

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What is the Senior Managers and Certification Regime? (SMCR) 

The Senior Managers and Certification Regime is intended to strengthen market integrity and reduce harm to consumers by holding people to account. As discussed below, the number of financial service firms to which SMCR applies has been expanded in recent years. The aims of this expansion are to regulate individuals working in financial services by encouraging staff to take responsibility, and to make sure they understand where responsibility lies within their organisation.

Whilst it has applied to the banking sector since 2016, the number of firms governed by SMCR has expanded in recent years. As of late 2019, SMCR now applies to all solo-regulated firms (i.e. those regulated by just the FCA). For firms within the scope of the regime, the precise nature of the obligations that fall on individual members of staff vary according to the nature of their role. 

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