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Col 4 of 7
Vulnerable consumers to be better protected

By Bruce Cameron
Co-author to The Ultimate Guide to Retirement in South Africa

The financial conduct regulator, the Financial Sector Conduct Authority (FSC stepping up on how financial services companies, from insurance to banks, must treat vulnerable people. Addressing vulnerability does not mean simply providing a ramp for people in wheelchairs to get into a building – it is a lot more extensive and quite complex.

The FSCA is holding on-going discussions with a range of stakeholders on how the financial service industry must handle people with vulnerabilities. This includes people with little understanding of financial markets through to people with total or limited lack of hearing sight or speech.

In a statement, in reply to questions, FSCA says it expects regulated entities (financial institutions and financial advisers) to ensure that they deliver the six Treating Customers Fairly (TCF) outcomes to their customers throughout a product life cycle. (See TCF below).

To enhance the protection of vulnerable consumers, the FSCA published its Statement on Consumer Vulnerability in March 2024. The Statement examines the concept of consumer vulnerability and outlines its relevance in the context of market conduct regulation for South Africa.

‘Understanding consumer vulnerability is an important practical step towards operationalising and embedding the TCF outcomes and driving positive consumer outcomes with maximum impact.

“The Statement recognises that consumer vulnerability is a complex, multi-dimensional (and sometimes transient) concept that can be driven by several factors including demographic factors such as race, gender, level of education, and health.’

Economic Vulnerability Statement

The FSCA Statement on Consumer Vulnerability states that it is responsible for, among other things, protecting financial customers by promoting their fair treatment by financial institutions; and for promoting financial inclusion.’

It also aims to ‘embed a culture of treating customers fairly by developing an approach to help identify and address the needs of vulnerable consumers’.

The authority refers to the Organisation for Economic Cooperation and Development (OECD) ‘High Level Principles on Financial Consumer Protection’. (The OECD is made up of 38 high-income, democratic countries. The organisation aims to promote policies to improve the economic and social well-being of people everywhere).

The OECD recognises that ‘some consumers may experience financial vulnerability due to a combination of personal characteristics, behavioural biases and market conditions’.

The FSCA says vulnerable people are not only people suffering from disabilities. It includes people, such as those who were badly impacted by Covid, or even the 46% of people in South Africa who struggle to make ends meet financially.

The authority says it is considering an approach similar to other international regulators. This means considering three dimensions of vulnerability, namely:

Demographics: This includes: Age, health, gender, level of income, source of income, education level, digital literacy and access, financial literacy and capability, race and geographic location.
Resilience: This includes: Job security, savings, indebtedness, insurance, home ownership, family support and family structure.
Life circumstances: This includes: Loss on income, bereavement and relationship breakdown.

The FSCA also refers to the British regulator (the FCA) which states: ‘The characteristics of vulnerability the FCA identifies relate to the following four drivers:

Health: health conditions or illnesses that affect the ability to carry out day-to-day tasks. This includes risk factors such things as mental/physical health issues, and learning disabilities.
Life events: life events such as bereavement, job loss or relationship breakdowns.
Resilience: low ability to withstand financial or emotional shocks.
Capability: low knowledge of financial matters or low confidence in managing money. (financial capability). Low capability in other relevant areas such as literacy, or digital skills.

Importance of TCF

The FSCA recommends ‘a deeper understanding and monitoring of consumer vulnerability, to respond proactively and pre-emptively to emerging financial consumer threats’.

This will include adapting the TCF principles and driving positive consumer outcomes for maximum impact.

‘Financial institutions are aware of their vulnerable customers and potential risk factors that may affect their interaction with the financial sector. Appropriate measures should be in place to respond to such customers, in line with ensuring fair treatment.

‘When financial institutions do not understand or adequately address the needs of vulnerable customers, they risk excluding these customers from the benefits of the financial system. This can perpetuate inequality and deepen the financial exclusion experienced by vulnerable customers.’

Phased TCF Approach

The FSCA is now adopting a phased approach to protecting vulnerable customers. These are:

Engage stakeholders (2024–25): FSCA will consult the financial services sector, consumers and other relevant stakeholders to establish current practices towards consumer vulnerability. This will look at current gaps in the market as well as in regulation and supervisory approaches. A start will also be made on the design and development of the multi-dimensional Financial Consumer Vulnerability Index.
Analyse and embed vulnerability (2025–27): Feedback from the first phase will be considered to refine vulnerability and will address such things as complaints data from ombuds and embedding vulnerability in TCF with more conduct standards.
Review of interventions (2027): This will include:

- the need for vulnerable customers to properly understand their protection. It will also include the use of education programmes;

- collaboration with all stakeholders, such as the industry, advocacy groups, community organisations to ensure vulnerability programmes are properly tailored; and,

- Monitor and evaluation: Making sure the programmes have an impact on vulnerable consumers.

By the way this does not mean the financial services companies can ignore what is intended by the regulator until it is regulated. There is nothing to stop them protecting vulnerable consumers now!

Treating Customers Fairly

The TCF framework is based on six outcomes. They are:

Customers can be confident they are dealing with firms where TCF is central to the corporate culture
Products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly
Customers are provided with clear information and kept appropriately informed before, during and after point of sale
Where advice is given, it is suitable and takes account of customer circumstances
Products perform as firms have led customers to expect, and service is of an acceptable standard and as they have been led to expect
Customers do not face unreasonable post-sale barriers imposed by firms to change products, switch providers, submit claims or make complaints.

Over the next few weeks this column will focus in on a limited group of vulnerable consumers, namely those people who suffer from hearing, seeing and speech challenges, particularly the elderly.

There is a lot more detail on this in the book, The Ultimate Guide to Retirement in South Africa. For more information on how to purchase the book go to Buy Now on the website www.retirementplanning.co.za

https://retirementplanning.co.za/new-system-for-complaints-about-financial-institutions

https://retirementplanning.co.za/column-2-of-7-economically-vulnerable-consumers

https://retirementplanning.co.za/column-3-of-7-economically-vulnerable-consumers-part-2/

https://retirementplanning.co.za/be-careful-about-how-you-invest-in-your-two-pots/

https://retirementplanning.co.za/col-13-name-and-check-your-beneficiaries/

https://retirementplanning.co.za/col-12-a-better-complaints-system/

Share this post

Col 4 of 7 Vulnerable consumers to be better protected

By Bruce Cameron Co-author to The Ultimate Guide to Retirement in South Africa

The FSCA is holding on-going discussions with a range of stakeholders on how the financial service industry must handle people with vulnerabilities. This includes people with little understanding of financial markets through to people with total or limited lack of hearing sight or speech.

In a statement, in reply to questions, FSCA says it expects regulated entities (financial institutions and financial advisers) to ensure that they deliver the six Treating Customers Fairly (TCF) outcomes to their customers throughout a product life cycle. (See TCF below).

To enhance the protection of vulnerable consumers, the FSCA published its Statement on Consumer Vulnerability in March 2024. The Statement examines the concept of consumer vulnerability and outlines its relevance in the context of market conduct regulation for South Africa.

‘Understanding consumer vulnerability is an important practical step towards operationalising and embedding the TCF outcomes and driving positive consumer outcomes with maximum impact.

“The Statement recognises that consumer vulnerability is a complex, multi-dimensional (and sometimes transient) concept that can be driven by several factors including demographic factors such as race, gender, level of education, and health.’

Economic Vulnerability Statement

The FSCA Statement on Consumer Vulnerability states that it is responsible for, among other things, protecting financial customers by promoting their fair treatment by financial institutions; and for promoting financial inclusion.’

It also aims to ‘embed a culture of treating customers fairly by developing an approach to help identify and address the needs of vulnerable consumers’.

The OECD recognises that ‘some consumers may experience financial vulnerability due to a combination of personal characteristics, behavioural biases and market conditions’.

The FSCA says vulnerable people are not only people suffering from disabilities. It includes people, such as those who were badly impacted by Covid, or even the 46% of people in South Africa who struggle to make ends meet financially.

The authority says it is considering an approach similar to other international regulators. This means considering three dimensions of vulnerability, namely:

Demographics: This includes: Age, health, gender, level of income, source of income, education level, digital literacy and access, financial literacy and capability, race and geographic location.

Resilience: This includes: Job security, savings, indebtedness, insurance, home ownership, family support and family structure.

Life circumstances: This includes: Loss on income, bereavement and relationship breakdown.

The FSCA also refers to the British regulator (the FCA) which states: ‘The characteristics of vulnerability the FCA identifies relate to the following four drivers:

Health: health conditions or illnesses that affect the ability to carry out day-to-day tasks. This includes risk factors such things as mental/physical health issues, and learning disabilities.

Life events: life events such as bereavement, job loss or relationship breakdowns.

Resilience: low ability to withstand financial or emotional shocks.

Capability: low knowledge of financial matters or low confidence in managing money. (financial capability). Low capability in other relevant areas such as literacy, or digital skills.

Importance of TCF

The FSCA recommends ‘a deeper understanding and monitoring of consumer vulnerability, to respond proactively and pre-emptively to emerging financial consumer threats’.

This will include adapting the TCF principles and driving positive consumer outcomes for maximum impact.

‘Financial institutions are aware of their vulnerable customers and potential risk factors that may affect their interaction with the financial sector. Appropriate measures should be in place to respond to such customers, in line with ensuring fair treatment.

‘When financial institutions do not understand or adequately address the needs of vulnerable customers, they risk excluding these customers from the benefits of the financial system. This can perpetuate inequality and deepen the financial exclusion experienced by vulnerable customers.’

Phased TCF Approach

The FSCA is now adopting a phased approach to protecting vulnerable customers. These are:

Analyse and embed vulnerability (2025–27): Feedback from the first phase will be considered to refine vulnerability and will address such things as complaints data from ombuds and embedding vulnerability in TCF with more conduct standards.

Review of interventions (2027): This will include:

- the need for vulnerable customers to properly understand their protection. It will also include the use of education programmes;

- collaboration with all stakeholders, such as the industry, advocacy groups, community organisations to ensure vulnerability programmes are properly tailored; and,

- Monitor and evaluation: Making sure the programmes have an impact on vulnerable consumers.

By the way this does not mean the financial services companies can ignore what is intended by the regulator until it is regulated. There is nothing to stop them protecting vulnerable consumers now!

Treating Customers Fairly

The TCF framework is based on six outcomes. They are:

Customers can be confident they are dealing with firms where TCF is central to the corporate culture

Products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly

Customers are provided with clear information and kept appropriately informed before, during and after point of sale

Where advice is given, it is suitable and takes account of customer circumstances

Products perform as firms have led customers to expect, and service is of an acceptable standard and as they have been led to expect

Customers do not face unreasonable post-sale barriers imposed by firms to change products, switch providers, submit claims or make complaints.

Over the next few weeks this column will focus in on a limited group of vulnerable consumers, namely those people who suffer from hearing, seeing and speech challenges, particularly the elderly.

There is a lot more detail on this in the book, The Ultimate Guide to Retirement in South Africa. For more information on how to purchase the book go to Buy Now on the website www.retirementplanning.co.za

Related topics:

https://retirementplanning.co.za/new-system-for-complaints-about-financial-institutions

https://retirementplanning.co.za/column-2-of-7-economically-vulnerable-consumers

https://retirementplanning.co.za/column-3-of-7-economically-vulnerable-consumers-part-2/

https://retirementplanning.co.za/be-careful-about-how-you-invest-in-your-two-pots/

https://retirementplanning.co.za/col-13-name-and-check-your-beneficiaries/

https://retirementplanning.co.za/col-12-a-better-complaints-system/

Col 4 of 7
Vulnerable consumers to be better protected

By Bruce Cameron
Co-author to The Ultimate Guide to Retirement in South Africa