How Does the FCA Define a Vulnerable Customer? 4 Key Drivers of Vulnerability

In short, the FCA sees vulnerable customers as individuals who, due to their personal circumstances, may be especially susceptible to harm when dealing with financial services providers. This can result from physical, mental, or economic conditions or even temporary life events.

Companies and financial advisers must identify and support these customers, especially since they may be at a higher risk of making poor financial decisions or struggling to access the support they need.
Let’s start with a look at the FCA’s guiding principles, and we’ll use real-life examples along the way to keep things grounded and practical.

The FCA’s Definition of Vulnerable Customers

According to the FCA, a vulnerable customer is anyone who, due to personal circumstances, is at a higher risk of suffering harm. Vulnerability could be related to health issues, significant life events, low financial resilience, or low capability in terms of understanding financial matters.

These factors can hinder a customer’s ability to make informed decisions or fully understand the financial products they’re using. The FCA stresses that vulnerability is often not a fixed state—someone may move in and out of vulnerability based on changing life circumstances.

The FCA’s definition is broad on purpose. Here's why:

In October 2024, the FCA reiterated that firms don't need to rely exclusively on this definition but should have processes in place to recognise the vulnerability and act accordingly to support such customers.

Four Key Drivers of Vulnerability

The FCA breaks down vulnerability into four main drivers that firms should consider:

1. Health – This includes both physical and mental health conditions that may affect a person’s ability to manage or make decisions about their finances. Examples include chronic illness, cognitive impairments, or mental health struggles.
2. Life Events – Major life changes like bereavement, divorce, or job loss can create periods of temporary vulnerability, affecting the way people interact with financial services.
3. Resilience – This encompasses an individual’s financial and emotional resilience. Someone with low financial resilience might struggle to cope with a sudden expense or income shock.
4. Capability – This covers customers with low financial literacy or limited digital skills, making it harder for them to understand complex financial products or access services.

Each of these drivers reflects a different potential source of vulnerability. For instance, someone who has just lost their job might fall into the "life events" category, as their reduced income impacts their ability to manage expenses and debt effectively. By recognising these drivers, companies can better tailor their services to meet vulnerable customers' needs.

But here’s the kicker:

The Issue of Multiple Vulnerabilities

One of the biggest challenges in identifying and supporting vulnerable customers is that vulnerabilities rarely exist in isolation. According to FCA research on vulnerable customers, more than half of vulnerable customers experience multiple drivers of vulnerability at the same time.

This is important because financial services staff often focus on a single visible vulnerability and tailor their support accordingly. However, by doing so, they might overlook equally significant or even more pressing challenges that the customer faces.

For example, a customer who has recently lost their job (a life event) may also struggle with mental health issues (a health vulnerability), impacting their financial resilience and decision-making ability.

To truly fulfil the duty of care to consumers, firms must take a holistic approach, considering all potential vulnerabilities rather than addressing only the most obvious ones. Training frontline staff to recognise and manage multiple vulnerabilities will lead to better outcomes for customers and improved compliance with FCA expectations.

Why Does Vulnerability Matter?

Why should firms pay particular attention to vulnerable customers?

For starters, research suggests that one in four UK adults may experience some form of vulnerability at any given time, meaning that vulnerable customers are not a rare occurrence. Moreover, failing to recognise vulnerability can lead to severe consequences for the individual, such as financial hardship or distress.

From a business perspective, mismanaging vulnerable customers may damage a company’s reputation and result in regulatory penalties, hence the need for proper compliance.

The FCA has also observed that some financial firms may inadvertently or knowingly exploit vulnerable customers by pushing products that may not be suitable for them. This exploitation has prompted the FCA to issue stricter guidance on the treatment of vulnerable customers.

FCA Vulnerable Customers Examples in Practice

Identifying vulnerability isn’t always straightforward, as people may be reluctant to disclose personal difficulties. Firms are encouraged to look for signs of vulnerability and act proactively. Here are a few practical examples of how this vulnerability might present itself and how financial advisers can respond:

Example 1: Health-Related Vulnerability

Consider Sarah, a customer diagnosed with early-stage dementia. She’s always managed her finances independently, but lately, her memory lapses have led to missed payments and confusion about her accounts. Without proper support, Sarah is at risk of falling into debt or even becoming a victim of financial fraud.

How should a firm respond? The FCA recommends that companies train frontline staff to recognise signs of cognitive decline. Staff should be prepared to adjust their communication style, perhaps using simpler language and offering repeated explanations as needed. Many firms might also assign a dedicated support advisor for customers like Sarah to ensure consistent and understanding service.

Example 2: Vulnerability from Major Life Events

Imagine John, a long-time customer who recently lost his spouse. In addition to grieving, John finds himself overwhelmed by the financial responsibilities he now faces alone, from managing household bills to understanding investment portfolios he and his spouse previously handled together. During a routine call with his bank, John sounds stressed and uncertain, struggling to make decisions about his finances.

A good response here would involve empathising with John’s situation and possibly arranging for a specialist to help him sort through his financial options at his own pace. Some firms may even create a "bereavement protocol" that ensures customers like John get the emotional space and practical support they need during this difficult time.

What Does FCA Guidance Suggest?

In recent years, the FCA has made it clear that firms must go beyond simply identifying vulnerable customers—they should also design services that cater to these customers’ specific needs. Firms should:

• Train Staff: Staff, especially those on the frontline, should be trained to spot signs of vulnerability and respond appropriately.
• Tailor Communication: Information must be clear, accessible, and tailored to customers’ circumstances.
• Provide Flexible Options: Vulnerable customers may need more flexible payment options, extended deadlines, or access to specialised customer service support.
• Establish Internal Policies: Companies should establish clear, well-documented policies that guide employees in supporting vulnerable customers.

The FCA’s guidance also warns against "one-size-fits-all" solutions, as vulnerabilities can vary significantly from person to person. For instance, a person with mental health challenges may have vastly different needs compared to someone facing financial difficulties. Tailored approaches can help firms address these unique circumstances, ensuring fair treatment and positive outcomes for all customers.

Key Changes and Updates in 2025

The landscape for vulnerable customer treatment has evolved significantly since the original FCA guidance was published. Here are the most important developments that firms need to understand and act upon.

The Consumer Duty Impact

The Consumer Duty, introduced in 2023, now sits alongside vulnerability guidance and has raised expectations for proactive monitoring and good customer outcomes for the vulnerable. This regulatory shift means that firms can no longer take a reactive approach to vulnerability—they must actively design their services with vulnerable customers in mind from the outset.

The Consumer Duty has fundamentally changed how firms must think about vulnerability by requiring them to demonstrate that they are delivering good outcomes for all customers, with particular attention to those in vulnerable circumstances. This goes beyond the traditional approach of simply having policies in place to actually proving that these policies result in positive, measurable outcomes.

FCA's March 2025 Review: The Concerning Gap Remains

The FCA's March 2025 review found that, while many firms have improved support thanks to the Consumer Duty, 44% of vulnerable customers reported negative experiences—compared to 33% of non-vulnerable customers. This statistic is particularly striking because it shows that despite increased regulatory focus and guidance, vulnerable customers are still experiencing disproportionately poor service.

This gap indicates that many firms are still failing to translate good intentions into actual positive customer experiences. The 11-percentage-point difference between vulnerable and non-vulnerable customers' experiences suggests systemic issues that require urgent attention across the industry.

What Senior Management Must Do Now

The 2025 review has made it clear that senior management engagement is non-negotiable. Senior management must engage regularly with vulnerability risks and outcomes data—culture and training remain central.

Specifically, senior leaders are expected to:

• Champion a vulnerability-aware culture by demonstrating visible commitment to vulnerable customer outcomes, not just through policy statements but through regular review of data and outcomes.
• Ensure adequate resources and training are allocated across all levels of the organisation, with particular attention to non-frontline staff who may not receive vulnerability-specific training but whose decisions impact customer outcomes.
• Review governance structures to ensure there are formal oversight mechanisms in place. The FCA found that only 39% of firms had formal governance bodies or committees overseeing and influencing outcomes for vulnerable customers.

The Critical Importance of Data Quality

One of the key findings from the 2025 review emphasises that data quality matters more than ever. Firms must:

• Track vulnerabilities systematically rather than relying on ad-hoc identification. This includes implementing robust data collection processes that capture the full spectrum of vulnerability indicators.
• Review complaints with a vulnerability lens to identify patterns and systemic issues that may be disproportionately affecting vulnerable customers.
• Support distributors effectively by recognising that intermediaries and third parties often hold first-hand knowledge of customer vulnerabilities that firms may not see directly.
• Ensure actionable insights flow from data collection to actual service improvements, not just reporting dashboards.

Practical Steps for Firms: Beyond Compliance to Real Impact

Based on the 2025 review findings, firms should focus on these practical improvements:

Encourage Customer Disclosure

The research shows that only 42% of customers disclose vulnerability, with many fearing they'll receive poorer service. This fear is clearly justified given the negative experience statistics, creating a vicious cycle where those who most need support are least likely to ask for it.

To address this, firms should create safe, judgment-free environments where customers feel comfortable sharing personal circumstances. This might include training staff to ask supportive questions during routine interactions and demonstrating through actions that disclosure leads to better, not worse, service.

Comprehensive Staff Education

All staff need vulnerability awareness, not just frontline teams. The 2025 review found that product and service design staff rarely received vulnerability training, yet their decisions fundamentally shape whether services work for vulnerable customers.

Training should cover how to identify potential vulnerability signs, how different vulnerabilities might interact with specific products or services, and most importantly, how to respond appropriately without making assumptions about what customers need.

Review Product and Service Design

Design processes must accommodate vulnerable customer needs from the start, not as an afterthought. This means involving vulnerable customers or their advocates in the design process, testing products with diverse user groups, and considering how different vulnerabilities might affect product usage throughout the customer journey.

Use Feedback Systematically

Harness complaints, feedback, and distributor reports to identify specific areas where vulnerable customers face challenges. This intelligence should drive targeted improvements rather than general policy updates.

The FCA's 2025 review makes it clear that firms can no longer rely solely on good intentions or basic compliance with existing guidance. The Consumer Duty era demands demonstrable outcomes, robust data, and genuine senior management accountability for vulnerable customer experiences. With 44% of vulnerable customers still reporting negative experiences, there's clearly significant work to be done across the industry.

Firms that take proactive steps now—not just to meet regulatory requirements but to genuinely improve outcomes—will be better positioned for future regulatory scrutiny and, more importantly, will be providing the ethical, inclusive financial services that vulnerable customers deserve.

The Importance of Protecting Vulnerable Customers

So, how does the FCA define a vulnerable customer, and what is the overarching aim for the FCA when considering vulnerable customers? To recap, here are some essential points for firms working with vulnerable customers:

• Understand the Four Drivers of Vulnerability: Health, life events, resilience, and capability.
• Be Proactive: Identify signs of vulnerability, even when customers don’t explicitly disclose them.
• Communicate Empathetically: Use clear, respectful, and patient communication tailored to each customer’s needs.
• Offer Flexibility: Provide flexible payment options, timelines, and alternative solutions where possible.
• Train and Equip Staff: Ensure that all employees, from frontline staff to senior management, understand vulnerability and know how to respond effectively.

Financial firms that focus on these practices can make a substantial difference in their customers’ lives and align with FCA requirements, fostering trust and a positive reputation within the industry.

Addressing the needs of vulnerable customers isn’t just a regulatory box to tick; it’s a core responsibility of ethical financial services. When companies take the time to understand, recognise, and cater to these unique needs, they contribute to a more inclusive and supportive financial system. The rewards are clear: fewer complaints, improved customer satisfaction, and a stronger brand reputation.

Interested in learning more?

For a comprehensive guide to managing vulnerable customers effectively, see our course on Vulnerable Customers. In this course, we’ll dive deep into the FCA’s guidelines and provide actionable strategies to help you identify and support vulnerable individuals across various financial sectors. This training will give you the confidence to create meaningful policies, improve customer experience, and align with the FCA’s expectations on vulnerable customer treatment.

FAQ

What defines a vulnerable person under the Care Act 2014?

Under the Care Act 2014, a vulnerable person is defined as an adult who has care and support needs, is experiencing or at risk of abuse or neglect, and cannot protect themselves due to their care needs. The Act places a duty on local authorities to assess and provide support to such individuals to help prevent harm, improve well-being, and promote independence. It emphasises safeguarding and empowering individuals in vulnerable situations.