How AI tools can help keep vulnerable customers safe
Use new technology with care and everyone wins – especially vulnerable customers
The Financial Conduct Authority (FCA), which regulates financial services firms in the UK, has long had a focus on treating customers fairly. With the cost-of-living crisis pushing great swathes of the population into debt (7.4 million people were struggling with bills and credit repayments in January, according to FCA data), customer vulnerability is under even greater spotlight.
Building on work started in 2021, when it issued guidance on how financial services businesses should treat vulnerable customers, the FCA has begun investigating whether the industry is meeting the standards it has set, including a 40-part questionnaire issued to regulated entities in June 2024 that will inform its next steps.
The regulatory crackdown is designed to ensure businesses are adhering to standards laid out in FCA Consumer Duty rules published last year. While the main purpose of the duty is to tighten consumer protections, it has also created the opportunity for greater innovation in financial services – in particular, the use of artificial intelligence (AI) which the regulator has indicated it is cautiously supportive of.
What is “customer vulnerability”? It’s a spectrum that can be caused by a range of factors - capacity, illness, or financial/personal circumstances. In some cases, judging whether a customer is vulnerable will be straightforward. In others, it will be less clear.
Provided it is implemented carefully, AI offers significant potential to improve the detection and support of vulnerable customers through more effective data collection and monitoring that support the creation of tailored solutions and enhance human interactions.
However, when adopting AI vulnerability tools, organisations must consider data protection compliance, in particular the lawful basis for collecting and processing a customer’s personal data. Failure to comply with these requirements can lead to enforcement action from the Information Commissioner’s Office, including significant financial penalties.
It’s likely to be the end of the year before the FCA publishes the results of its vulnerable customer survey, so it’s not clear whether it will seek to tighten up the rules. However, an enforcement case from May shows how seriously it is taking the issue. HSBC was fined £6.2m for historic failures in handling customers experiencing financial difficulties, in particular failing to take into account individual circumstances that led to missed repayments.
The FCA found the bank’s approach “put 1.5 million people at risk of greater financial harm” and, in addition to the fine, HSBC had to pay affected customers a total of £185m in redress. With the bank also having to spend £94m to identify and address issues that led to the unfair treatment in the first place, the case reminds all organisations just how far the regulator will be prepared to go when it comes to ensuring vulnerable clients and those in financial difficulty are properly treated, and that firms comply with their regulatory obligations.
In a constantly evolving digital age, the use of technology and its accessibility is impacting financial services customers who experience vulnerability. While there are acknowledged risks associated with the use of AI, there are opportunities for those developing innovative solutions and firms using this new technology to support customers. Outcomes from the FCA’s survey and enforcement actions, such as the fine against HSBC, will inform next steps around regulation and guidance. For now, financial services organisations must continue to do all they can to earn and keep the consumer trust and deal with vulnerability appropriately.
Caroline Stevenson is a Partner, Burness Paull. This article was co-written by Jamie Gray, Partner