Firms’ target markets are always likely to include vulnerable people so the Consumer Duty requires them to consider whether their products have features that risk harm to all customers – including those who are vulnerable, the Financial Conduct Authority (FCA) has said.
The regulator also highlighted that vulnerability was not a static state of being and people could become vulnerable at different times or for certain periods – potentially through their health or a death.
FCA manager of consumer policy outcomes Richard Wilson highlighted the issues when discussing the Consumer Duty’s product and services outcome for the regulator’s latest podcast.
Wilson explained the regulator wants to see firms design products and services to meet the needs of a clearly defined target market and to monitor what happens in practice.
It wants to ensure products and services work as expected, but also to certify that products or services are being sold to the right people – the people in that clearly defined target market.
“If firms do this, so they put in place good governance and oversight of their products and services, and then they act on what they see in any problems, then this will be a big step towards our overall objective of delivering good consumer outcomes,” he added.
Vulnerability can be triggered
When discussing what consideration needed to be given to customers with characteristics of vulnerability under the outcomes guidance, Wilson emphasised that vulnerability was not a permanent position with events such as a death potentially being a key factor.
“Customers may move in or out of vulnerable circumstances at any stage – such as a change in their health a bereavement or numerous other reasons,” he said.
“Therefore, a firm’s target market is always likely to have and to include some vulnerable customers.”
Consequently, rather than review individual customers or track their potential vulnerability, the FCA wants firms to consider whether their product or service has features that could risk harm for any group of customers, including those with characteristics of vulnerability.
“If it does, we want the firm to consider how best to mitigate those risks, Wilson continued.
“So, again, in 2021, we published guidance for firms on their fair treatment of vulnerable customers, that’s on our website as well.
“And if firms want more information on the characteristics of vulnerability and the steps they should take, this is a really good place to look.”
Avoid ‘vague’ target markets
Expanding on how firms should select their target consumer market, wilson noted it would need to be of sufficient granularity.
“As a rule of thumb, I would say the target market should be defined in enough detail to avoid including any groups of customers who would suffer harm from that product or service,” he said.
“So, what we don’t want to see is vague or very broadly defined target markets that might include groups who actually wouldn’t benefit from the product or service.”
