The fair treatment of vulnerable consumers has been high on the FCA agenda for several years as these consumers are at greater risk of financial harm. Recent FCA guidance has been followed by the Lending Standards Board [LSB] releasing the results of a thematic review, considering whether vulnerable customers were receiving fair outcomes at key points in product life cycles including sales, credit assessment, collections and recoveries.
The LSB reported that it found inconsistencies and deficiencies across all firms in the way that vulnerability is identified, assessed, treated, recorded, monitored and supported. It also found inconsistencies in firms’ ability to identify and support customers who may be vulnerable to a scam. In their summary, “There is clearly more that firms need to do.”
Positively, the LSB found that most firms had a defined ‘three lines of defence’ framework in place. However, it also found that the QA function was often focused on the narrow issues, like procedural competence rather than considering the wider risks.
That mirrors our experience when reviewing the effectiveness of such processes. There is a significant risk that people focus on the need to comply with processes rather than understanding the cultural importance of recognising potential vulnerability and reacting to ensure that customers are appropriately protected and receive fair outcomes. We would say process compliance doesn’t in itself lead to good consumer outcomes.
The LSB report focuses on governance and oversight, and there is a greater risk of oversight failings being missed when each of the three lines do not operate collaboratively. Inadequacies become more acute when there is a lack of independence in the third line.
Are your three lines of defence fit for purpose – or do they just ‘tick’ boxes? Give us a call, let’s talk through how our independent reviews can help.