Consumer Duty under review: What CP26/23 clarifies for vulnerable customers

This article forms part of our series on the FCA's Consumer Duty consultation (CP26/23). In our introductory article, we considered the consultation's overall proposals and themes. Here, we focus on what the FCA's proposed changes mean for firms supporting vulnerable customers.

CP26/23 is a targeted FCA consultation on the scope and proportionality of the Consumer Duty. For firms considering their obligations towards vulnerable customers, the more accurate takeaway is that the FCA is not changing the overall direction of travel but is proposing to clarify how existing expectations should be applied by different firms according to their role, activities and the risk of harm.

Rather than signalling a retreat from the Consumer Duty, the consultation paper seeks to reduce unnecessary complexity while maintaining consumer protection. That said, it would be too absolute to say that the position for vulnerable customers is wholly unchanged. CP26/23 proposes new rules and guidance text making it clearer that manufacturers further removed from end customers may take a proportionate, risk-based approach, while firms closer to the customer have more direct responsibilities to identify and respond to individual support needs.

What broadly remains unchanged and what is proposed to be clarified?

1. Good outcomes remain the objective

As discussed in our introductory article, the consultation paper does not alter the Duty’s core objective. The FCA expressly says the core structure and objectives of the Duty remain unchanged, and that firms should continue to deliver good outcomes for retail customers, including customers in vulnerable circumstances. Proportionality should not be mistaken for lower standards.

2. Firms still need to understand where customers face barriers

Firms still need to consider where vulnerable customers may face barriers, whether in product design, communications, support or distribution. However, CP26/23 makes it clearer that this analysis is role-specific. Manufacturers further removed from end customers should focus on risks created by their own activities, such as product design, target market assessments and distribution arrangements, while distributors and other firms closer to the customer have more direct responsibilities to identify and should respond appropriately to individual needs.

3. Customer outcomes matter more than processes

The FCA continues to focus on outcomes rather than box-ticking, but CP26/23 also stresses that monitoring and escalation should be proportionate and linked to the firm’s role and the risk of material harm. For simpler products without features presenting additional risks of harm to customers in vulnerable circumstances, manufacturers may be able to take a lighter, risk-based approach. For more complex products or target markets with a high concentration of potential vulnerability, firms will be expected to do more.

4. Consumer Duty is not just about disclosures

CP26/23 does not reduce vulnerable customer considerations to disclosure alone. Although the FCA proposes clarifying that compliance with applicable disclosure regimes will generally be the primary means by which some manufacturers support consumer understanding, the Duty remains broader than disclosure rules, and the FCA also says its vulnerable customer guidance in FG21/1 remains relevant. Firms should therefore continue to consider vulnerable customer issues across product design, communications and support.

5. Governance remains critical

Governance remains important, but CP26/23 also adds nuance here. The FCA proposes more proportionate board reporting, stating that firms do not need a stand-alone Consumer Duty board report, and that it no longer expects firms to have a separate Duty champion. Even so, boards and senior management must still assess whether the firm is delivering good outcomes, including for groups such as customers in vulnerable circumstances.

What should firms be doing now?

Rather than treating CP26/23 as a relaxation of the Duty, firms should treat it as a prompt to test whether their arrangements are appropriately calibrated to their actual role in the distribution chain. That may include reviewing product governance, target market assessments, distribution oversight, communications testing, customer support and MI or escalation frameworks, with particular attention to whether customers in vulnerable circumstances may be experiencing poorer outcomes.

Overall, CP26/23 broadly proposes to preserve the substantive position that vulnerable customers remain a regulatory priority and that firms must continue to deliver good outcomes for them. The main development is that the FCA is proposing clearer and more explicit guidance on how those expectations should be applied proportionately by different firms. 

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