Never before has it been more crucial for those working in the mortgage industry to ensure that they have adequate processes in place to identify and support their vulnerable clients.
With some of the early indications showing concerns across the mortgage industry around vulnerability identification levels – specifically, firms that may be identifying sub-5% or 10% of their clients as being vulnerable (the rate should be more in the region of 24%) – and with some firms struggling with their vulnerability reporting, it seems that mortgage professionals need to ask themselves some essential questions.
Here are five questions we urge you to ask yourself about your financial vulnerability process today:
Are you taking a tick-box approach to client vulnerability?
Vulnerability is not a tick-box exercise; rather, it is nuanced and complex. What is required instead is a means to systematically identify all signs of vulnerability, based on the Financial Conduct Authority’s (FCA’s) definitions of vulnerability, for each and every client on an ongoing basis.
The best way to do this is by combining clinical expertise with hard data to remove any bias and subjectivity and to collate a robust dataset that stands up under regulatory scrutiny.
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Can you evidence whether each of your clients are in a vulnerable circumstance, vulnerable or not vulnerable?
It’s no surprise that you may have been struggling with your vulnerability identification process. It is, after all, ever so complex. But it must be done. And of course, things can be further complicated when it comes to understanding the difference between customers who may be facing a vulnerable circumstance, and those who are vulnerable and require some degree of support. It’s also critically important to document those who aren’t vulnerable at all as well, to protect your firm from any future claims.
The reality is that vulnerability is a delicate threshold that shifts throughout our lives, and this needs to be taken into consideration during every assessment with your clients. For the vulnerability identification and assessment process to work, it must be done consistently across all customers, and everything should be documented should the regulator come knocking.
Can you produce detailed data and MI on what vulnerabilities are present in your client base?
As with many complex challenges like this, data is, and always will be, the answer. A Chartered Insurance Institute (CII) paper produced in late 2024 documented that 21% of firms still have a ‘data gap’ when it comes to understanding vulnerability and that 26% of firms are merely using data right now as a ‘stop gap’ – rather than it being fit for purpose long term. These figures are worrying enough, but we would maintain that the figures are actually even higher than this CII dataset reveals.
Quite clearly, there is still a significant difference between understanding vulnerable customers and identifying vulnerable customers. You’ll need to understand both – and the only way to do that is through detailed data analysis and a robust identification process. As such, a systematic process for screening all clients, with appropriate accommodations for the needs of those at risk, is essential.
Are you able to demonstrate how you have supported your vulnerable clients – and, indeed, those who are not?
For the vulnerability identification and assessment process to work, it must be done consistently across all your clients. This means that every client should be assessed in the same way, no matter whether you think they are likely (or unlikely) to be vulnerable. If a vulnerability has been identified, you will need to ensure that you have supported that client in the right way to ensure the best outcome for that client. Any vulnerabilities that are identified – as well as any actions or interventions that you take to provide support – must also be comprehensively recorded in a way that can be recovered and acted upon later.
And remember, it’s not just about recording if someone is vulnerable. In fact, to compile the most comprehensive records, you will need to keep thorough records of clients who they have recorded as not being vulnerable. Only then can you ensure you are providing the best possible outcomes for all your clients.
Are you able to demonstrate that you conduct your vulnerability assessments routinely?
Assessing a client for signs of vulnerability should never be treated as a one-off task. After all, vulnerabilities aren’t static. They come and go, changing guises regularly. If you are supporting a client through one mortgage transaction, running a robust assessment at the point of advice is normally sufficient.
That being said, good practice for mortgage professionals – specifically if you are dealing with a client on an ongoing basis – would be to carry out a vulnerability assessment yearly.
These five questions are fundamental in how you work with your clients this year – and to ensure your firm is protected should the regulator come knocking.
From larger fines to closer investigations, things are ratcheting up. It’s important to ask the right questions and get your house in order. Identification. Action. Reporting – don’t delay.
