Last week, the Financial Markets Authority (FMA) refreshed its customer vulnerability expectations for financial services firms. The refresh, which updates the FMA information sheet from June 2020, comes at a critical time for the financial services sector.
COVID-19 is redrawing the traditional characteristics of “customer vulnerability". Customers previously regarded as distinctly non-vulnerable are coming under increasing financial pressure as the economic impact of COVID-19 continues to be felt. Financial services firms are having to manage an ever expanding population of newly-vulnerable customers.
We summarise some of the highlights from the FMA's vulnerable customer refresh.
Vulnerability by customer circumstance not type
The FMA has developed an industry-wide Consumer Vulnerability Framework in coordination with the Council of Financial Regulators. As part of this framework, financial services firms are expected to proactively determine customer vulnerability based on the specific circumstances of the customer, rather than general customer type.
Drivers of vulnerability can include income and debt levels, financial capability and understanding, life events, physical health issues, disability, language, literacy, stress and mental health.
Another national lockdown and the associated economic impacts throws many of these factors into sharp relief. Financial services firms can no longer confine vulnerable customers to categories like the elderly, young or impaired. A much more contextual assessment of vulnerability is required.
The FMA has itself acknowledged that the closure of offices can drive increased customer vulnerability and give rise to a need for specialist support for customers in these circumstances.
Policies, procedures and executive accountability
The FMA expects firms to “demonstrate that policies and procedures for customer vulnerability are in place". These policies and procedures should be implemented across the business and should apply throughout the entire customer journey.
The FMA has identified a particular role for complaints identification and reporting processes to help identify and address customer vulnerability. It has also recommended that firms assign accountability at executive level for vulnerability policies, and consider how the success of the policies can be measured and the results reported.
Customer vulnerability is a general responsibility
Vulnerable customer policies and procedures should be clearly communicated and understood by all staff and intermediaries of a firm. This may require guidance and training. However, it may also require access to appropriate support mechanisms such as “practical and/or emotional support".
Communications should be clear and respond appropriately to the customer's needs and characteristics. Where possible, vulnerable customers should be given a choice of communication channels.
Digital communication tools can provide financial services firms with additional ways of communicating with vulnerable customers. However, they can also prevent financial services firms from identifying vulnerable customers in the first place.
The FMA has suggested that financial services firms should make it easier for customers to disclose their needs through online platforms, or by using data analytics or software to identify drivers of vulnerability.
What is good practice when addressing customer vulnerability?
The FMA has offered various examples of good practice to illustrate how firms are now addressing customer vulnerability. These include:
Defining customers in vulnerable circumstances as “extra care customers" to focus on the positive role the financial institution plays in ensuring good customer outcomes.
Establishing a working group consisting of representatives from across different business areas to track customer vulnerability policy implementation and areas for improvement.
Wide-ranging staff empowerment activities, including training staff to identify red flags, online modules with senior executives focusing on certain areas of vulnerability with relevant examples, and training call centre staff on the LEAP framework (Listen, Empathise, Ask, Propose).
Having a multi-channel COVID-19 customer service response.
Providing support services as part of product and service offerings including online tools that help customers to identify government provided benefits and services, determine their eligibility and assist them to apply.
Building in a risk assessment for communication campaigns to ensure communications are suitable for vulnerable customers.
Next steps for financial services firms
The FMA information sheet provides a useful reminder of the regulator's expectations regarding the management of vulnerable customers. Financial services firms would be well advised to consider how their current processes measure up to these expectations and how they can demonstrate that they identify and respond adequately to the needs of vulnerable customers in practice.
Customer vulnerability has been an area of regulatory focus in New Zealand and elsewhere for some time. This is unlikely to go away.
If you have any questions about the matters raised in this article, please get in touch with the contacts listed or your usual Bell Gully adviser.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.