What can we learn about the FCA’s approach to vulnerable customers from HSBC’s £6.2 million fine?

On 23rd May, FCA published details of a fine issued to HSBC for its treatment of customers who were in arrears or experiencing financial difficulty. While the issues occurred between June 2017 and October 2018, pre-Consumer Duty, and many of the issues identified are specific to HSBC and its structure and governance, the final notice provides some insight into areas of concern that could apply to any firm dealing with consumers.

For background, the issues arose while HSBC offered secured retail mortgages, unsecured loans, credit cards and overdrafts under the HSBC, First Direct, Marks and Spencer bank and John Lewis Financial Services brands. Specifically, HSBC failed to properly consider people’s circumstances when they had missed payments. This meant it did not always do the right affordability assessments when entering arrangements with people to reduce or clear their arrears. Sometimes it took disproportionate action when people fell behind with payments, which risked people getting into greater financial difficulty.

The FCA's helpful summary points to gaps and weaknesses in training and policies and procedures for customers in difficulty (vulnerable customers), with a lack of MI/action and review of MI by those who should have been responsible for this.

Some key takeaways from this case:

• Both training and policies and procedures should be context-specific, based on a firm’s business model and be detailed enough so staff understand they are required to identify and appropriately assist vulnerable customers, and have the skills and knowledge to do this.

• That means considering areas of vulnerability in your target market/client base, providing scenario-based training to build skills and knowledge, and design granular policies and procedures that address how staff should act (including how to document vulnerability, ability to take decisions and referral processes where needed for prompt action).

• A lack of ongoing training, support and appropriate documentation to guide how front-line staff should act has a knock-on effect on the ability of other staff, managers, trainers and quality assurance to fulfil their roles as they do not have a consistent understanding of how front-line they should conduct themselves in specific circumstances and carry out their roles.

• Without setting standards by training, documentation and examples, staff cannot be considered competent to deal with vulnerable customers. In short, how can you measure their competence (and sign off) without describing what 'good' looks like?

• Analysis of customers interactions will provide limited value in such circumstances (i.e., Quality Assurance needs actual standards to measure performance against, and identify areas of good/poor performance against this).

• With regards to MI, without addressing upfront what vulnerability is, how information is recorded and accessed by staff, and how consumers should be treated, it will be difficult to demonstrate a firm is appropriately identifying vulnerable customers and providing support. And without good MI, it will be almost impossible for Senior Management to demonstrate they are delivering Consumer Duty outcomes.

HSBC clearly failed in several areas but in issuing the fine, FCA acknowledged several mitigating factors that prevented a much larger penalty. As well as cooperating with FCA and undertaking a significant remediation exercise, HSBC were proactive and self-identified many of the issues, and did so quickly and effectively. This is key in a Consumer Duty context especially as being proactive and taking prompt and complete action to rectify a situation, including providing redress where appropriate is a crucial element for firms to deliver good outcomes for their customers.

The fine is a timely reminder of the FCA’s continued work to ensure firms treat customers in vulnerable circumstances fairly. Earlier this year, in March, FCA issued a statement notifying firms that it will conduct a review into how firms are acting to understand and respond to the needs of customers in vulnerable circumstances. If you haven’t already, we suggest firms review their compliance framework in relation vulnerable customers and ensure they are satisfied it is fit for purpose, particularly in light on the raised standards of Consumer Duty.

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