Written evidence submitted by UK Finance (CAF0044)

                               5th Floor

                               1 Angel Court

                                 London EC2R 7HJ

                                  www.ukfinance.org.uk

14 December 2018

UK Finance evidence to the House of Commons Treasury Committee inquiry into consumers’ access to financial services

UK Finance is the collective voice for the banking and finance industry. Representing more than 250 firms across the industry, we help drive forward positive change to enhance standards, support customers and promote innovation.

Introduction

We welcome the opportunity to provide evidence to the Treasury Committee’s inquiry into consumers’ access to financial services. Looking after every customer, especially those in vulnerable circumstances, is a priority for the financial services sector. Ensuring that people have access to banking and other financial services is a vital part of this.

It is now nearly three years since the Financial Services Vulnerability Taskforce - which brought together the financial-services industry, charities and consumer groups - published its report on improving outcomes for customers in vulnerable circumstances.[1] The Taskforce was set up to identify best practice, what gaps remained and where implementation, policy, technology, products and services could be improved. The intention was not to stop firms from competing or innovating but instead to focus on high-level principles and their incorporation into firms’ processes. Good progress has been made.

At the same time, banks provide basic accounts and offer customers the ability do their everyday banking at 11,500 Post Office branches across the UK, LINK’s Financial Inclusion Programme is ensuring that all consumers have free access to cash, while a range of government-led inclusion recommendations spanning across financial products are being delivered in some shape and form.

The Financial Conduct Authority (FCA) has also continued to play an important role since the publication of its Occasional Paper on consumer vulnerability.[2] Its Financial Lives survey[3]; which found that 50 per cent of the UK adult population shows characteristics of potential vulnerability, continues to highlight the necessity of this work. The FCA also plans to publish guidance for firms on vulnerable customers in 2019.

Indeed, it is notable that the Committee’s terms of reference not only begin with the FCA’s work on this issue but go on to raise questions that have recently been or still are the subject of detailed consideration by one or more parliamentary committees and/or regulatory authorities, including:

• the FCA’s Discussion Paper on a duty of care and potential alternative approaches;[4]
• the FCA’s Occasional Paper on access to financial services in the UK;[5]
• the report of the House of Lords Select Committee on Financial Exclusion;[6]
• the FCA’s Approach to Consumers document;[7]
• the FCA’s discussion paper on discrimination in the cash-savings market;[8]
• the Payment Systems Regulator’s (PSR) Specific Direction 8 requiring the adoption of appropriate policies and measures and reporting obligations regarding protected ATMs (LINK);[9] and
• the FCA’s Discussion Paper on fair pricing in financial services.[10]

There is more to do, and we will continue to work closely with members, consumer groups and regulators to deliver better access and outcomes for all. We would suggest however that, in reviewing the evidence that it receives, the Committee consider the scope and scale of legislative and regulatory change currently facing the banking and finance industry—domestic and European; prudential, conduct and competition; sectoral and general—and the impact of this on consumer outcomes and firms’ operational resilience.

Evidence

1. How should financial service providers define ‘vulnerability’?

a. Examine how financial services firms define ‘vulnerability’ and assess how practical the Financial Conduct Authority’s definition of vulnerability is.

We and our members apply the FCA’s definition of a customer in vulnerable circumstances as set out in its Approach to Consumers document. The FCA has defined a vulnerable consumer as someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care. In addition, the regulator has identified four key drivers or risk factors of vulnerability:

• health (broadly capturing health conditions or illnesses affecting day to day tasks);
• resilience (low ability to withstand financial or emotional shocks);
• life events (major life events happening in the last twelve months); and
• capability (low knowledge of financial matters or low confidence in managing money).

The same drivers framed the FCA’s Financial Lives survey which concluded that 50% of UK adults are ‘potentially vulnerable’, displaying one or more characteristics that signal their potential vulnerability. However, the FCA also recognised in its Approach to Consumers that potential harm does not develop into real harm for the majority of people who could be at risk.

In line with the FCA’s approach, the banking and finance industry very much recognises consumer vulnerability as a dynamic state that is affected by personal factors, life events and wider circumstances or relationships, including those between customers and their bank or other financial service providers. Individual firms will have their own policies and processes that build on the FCA’s approach and definition.

This is not devoid of challenges, for example identifying consumer vulnerability. Many consumers do not feel comfortable disclosing their vulnerability or do not consider themselves to be vulnerable. Identification over the cycle of longer-term products such as mortgages without customer disclosure or system detectable financial implications of their circumstances can be even more challenging. Firms are limited in their ability to identify vulnerable people including through data and especially in light of General Data Protection Regulatory requirements. There is also risk of detriment from false positives. Consumers may rightly also be nervous about the use of their data.

We also acknowledge that vulnerability is of an evolving nature and the circumstances that consumers find most pressing today may change in the future. We would expect members to discuss with the customer and not assume or make judgements about the duration of their vulnerability. In this context, we would be wary of any changes in approach that might steer the industry to a narrower interpretation of the circumstances that may cause someone to be vulnerable.

The highly individual nature of vulnerable circumstances, however, does not naturally conclude in the same product, service or system adjustment, as the risk of harm will also be particular rather than generic. We recognise that consumer vulnerability may present itself in different ways in different sectors; the risk of harm to the consumer will vary, as will the responsibilities of each sector to respond to consumer need, particularly in identifying and supporting the vulnerable. We hope that the FCA will provide clarity in its forthcoming regulatory guidance on this matter.

It is important to recognise that different public-sector organisations use different definitions of ‘vulnerability’ for different purposes. These also differ from the FCA’s high level definition for financial services, which may inevitably affect consumer or wider stakeholder expectations of firms. We would be concerned with different organisations using different definitions of vulnerability where market sectors intersect, as this may give rise to different—even unrealistic—expectations of responsibility or liability. Therefore, a pragmatic approach to implementation of definitions of vulnerability is needed with targeted use.

While the industry recognises it has a role in identifying the signs of vulnerability, there is also a need to encourage greater disclosure from consumers in order to secure appropriate support. Moreover, as the FCA also recognises, real harm is unlikely to occur to the majority of the consumers showing characteristics of actual or potential vulnerability. The industry has previously asked the FCA to provide greater clarity of its expectations of firms with respect to customers in vulnerable circumstances. We therefore support the FCA’s intention to do so through a more balanced definition of ‘vulnerability,’ per its forthcoming vulnerability consultation and guidance, for intervention and enforcement purposes.

b. Evaluate the training and practices in place at financial services firms in relation to vulnerable consumers.

In 2015, in response to the FCA’s Occasional Paper on consumer vulnerability, the Financial Services Vulnerability Taskforce was established.[11] Its report on improving outcomes for customers in vulnerable circumstances recognised that vulnerability can be fluid, temporal and specific to an individual’s circumstances. The report concluded with nine high-level principles and a series of recommendations that high-street banks and building societies and other financial services firms have sought to employ as a consistent framework for delivery. The principles are:

1. sensitive, flexible response; 
2. effective access to support; 
3. one-stop notice; 
4. specialist help available; 
5. easy for family and friends to support; 
6. scam protection; 
7. customer-focused reviews; 
8. industry alignment; and 
9. inclusive regulation.

Good progress has been made in identifying and supporting vulnerable customers in a range of product and service areas. Importantly, vulnerability policies are being embedded within and across firms, a clear indication of positive shifts in culture. Working alongside consumer groups, the government and other experts, as part of its wider commitment to provide the best possible service for those who may need additional support, the industry has completed work on delivering:

• Bereavement Principles[12] and a Death Notification Service[13] enabling people to report the death of an individual to several major financial services providers at the same time (principle 3);
• Principles to improve customer access[14] designed to improve processes for registering and using legal instruments to enable third party access such as Power of Attorney, Court of Protection Orders to Appointees and Guardianship Orders. To further enable someone to help manage a customer’s accounts alongside them, in March 2018 we designed for our members a minimum standard for a third-party mandate that could apply across current account providers and a wider framework for supporting third party delegation for banking and savings products, including an outline for the mandate and the circumstances in which it could be applied (principle 5);
• A range of measures to protect customers and target the unscrupulous fraudsters who prey on them. This includes the Banking Protocol,[15] a scheme that allows bank branch staff to contact the police if they suspect a customer is being scammed (for detail see our response to Question 5d) (principle 6).

We have also looked at non-system-detectable financial abuse and have published a voluntary Financial Abuse Code of Practice that can help members build out their policies and provide more consistent support to victims of financial or economic abuse.[16] The Code adopts a wider approach to financial abuse, in line with the government’s approach to domestic abuse, which differs in this sense from the definition assumed in the British Standard Institute. The Code focuses on six principles:

• raising awareness and encouraging disclosure;
• training colleagues;
• identification and appropriate response;
• minimising the need to repeat one’s story in the same organisation;
• help to regain control of finances; and
• signposting and referrals.

The Taskforce intended that further assurance work would be undertaken to understand how firms had progressed with the implementation of the principles and recommendations. We, our members and our Consumer Advisory Group commissioned the Lending Standards Board (LSB) to conduct this review of progress to implementation, which reported in October 2018. The review’s summary report suggests that the firms within its scope have approached adoption in a positive manner and that overall compliance is good.[17] Vulnerability remains an important subject for all stakeholders, and the report suggests that there is a clear culture within the firms it reviewed to “do the right thing.”

We continue to work closely with the FCA, members of our Consumer Advisory Group and other stakeholders, including the government and other experts, to better understand the indicators of vulnerability and how to improve outcomes for customers in vulnerable circumstances. The Taskforce report has been used by our larger retail members as a central framework for industry action, and we are pleased to note that the FCA acknowledges the efforts and progress that the industry has made in identifying and supporting customers in vulnerable circumstances.

c. Consider the merits of having a ‘duty of care’ for financial services providers and examine whether this would increase protection for vulnerable customers.

We responded to the FCA’s Discussion Paper on a duty of care and potential alternative approaches. We and our members recognise and support the need for consumers to be treated fairly, protected from misconduct and provided with timely and adequate information to enable them to make informed and appropriate purchasing decisions. Significant progress has been made over the last 10 years to enhance transparency and culture and to develop better outcomes for customers through industry-wide and firm-specific initiatives, with a particular focus on supporting the vulnerable. This work has been complemented by a significant regulatory change agenda.

The reasons cited by stakeholders seeking the introduction of a duty of care appear to be largely based on events in the past, in particular those that occurred prior to the financial crisis of 2008. More recently, the reasons cited by consumer groups have focused on vulnerable customers and wider firm culture as key areas resulting in perceived harm. Much has been done by the FCA and firms to address historic failings and ensure that they are not repeated. The FCA, as a more active regulator with a clear statutory objective to secure the appropriate degree of protection for consumers, has undertaken work to strengthen its rules and guidance, to introduce the Senior Managers and Certification Regime (SMCR) and to address specific risks arising in certain sectors of the market.

We believe that there are no significant gaps in the current regulatory regime, and do not therefore consider it appropriate or necessary for the FCA to impose a duty of care on firms in financial services, for the following key reasons.

• The introduction of an overarching duty will not deliver better outcomes for consumers. The existing legislative and regulatory framework already provides a wide array of overlapping protections, as well as extremely extensive duties on firms, and so it is difficult to see what a duty could provide by way of further substantive obligations over and above what already exists. The existing regime is complemented by voluntary standards, for example the LSB's Standards of Lending Practice (which also apply to SMEs).[18]
• A number of perceived historic failures have been associated with an insufficiently strong culture within firms. In this regard, the introduction of a duty is unnecessary as the extension of the SMCR to all FCA solo-regulated firms aims to ensure that a culture of doing the right thing by customers is embedded.
• The introduction of stricter rules—in effect of an overarching duty—would hinder firms' ability to apply flexibility in their approach to supporting customers and could result in their introducing additional checks and balances designed to mitigate increased litigation risk that may arise, for example by claims management companies. This in turn could have a negative effect on the customer journey/experience and create a more adversarial relationship between the firm and the consumer, by extension damaging trust in the industry at a time when both firms and consumers wish to embrace customer-centric innovation and flexibility to improve outcomes. The duty could also lead to firms adopting a more protectionist approach to demonstrate compliance with a broad and potentially unscoped requirement.
• The implementation of any duty designed to apply on a mass market basis will be difficult to define and to ensure consistency of application to a variety of products and services. Such challenges are likely to lead to an increase in litigation as firms and consumers seek to understand the scope of the duty and how it applies across the customer journey. Additionally, a duty of care interpreted as a fiduciary duty to avoid conflicts of interest would be challenging to implement in cases where the firm and the consumer have diverging interests, for example in setting prices or recovering bad debts. Finally, there is a concern that a duty of care interpreted as a duty to avoid harm may lead to excessive intrusion into the privacy and personal freedoms of consumers, particularly where a firm decides to take a precautionary view in relation to payments or credit provision that is deemed not to be in the subjective long-term interests of the client.
• The introduction of a duty would add a further layer of complexity and regulatory obligation that would impose further costs on firms and their customers and potentially affect product cost and availability. This is illustrated by potential unintended consequences that could arise in those areas of business that involve a third party, for example mortgages (lawyers, brokers, non-borrowing occupiers, tenants) and savings (attorneys, parents on children’s accounts, personal representatives). A duty could blur the lines between the existing duties and responsibilities of each of the parties, including the firms.

It is our view that, for the overwhelming majority of (known) consumer advocacy issues, correct remedial actions have been taken in line with the overarching FCA principles and aims. Where sufficient time to observe consequences has passed, yet harms are still observed, we do not recognise any evidence that harm is consistently occurring, certainly not in a sense that warrants a revision of the existing foundational regulatory principles. If the industry is to accept the assertion that there is sufficient evidence of harm, again we do not see this warranting a revision of the existing foundational regulatory principles. Such an approach requires thorough investigation into the causes of these harms and determination of appropriate action as a result.

Within the regulatory perimeter, the tools already exist for the FCA to regulate in such a way as to achieve the customer outcomes that its statutory objectives demand. As previously referenced, the FCA is producing guidance on vulnerability to help firms in the identification and support of these customers. To the extent that there are perceived shortcomings in particular areas, proportionate and targeted rather than general regulatory standards are more likely to achieve desired outcomes and minimise the risk of adverse consequences for customers.

2. Are certain groups of consumers excluded from obtaining a basic level of service from financial services providers?

Industry broadly adopts the definitions of financial inclusion of the Financial Inclusion Commission in its report on improving the financial health of the nation,[19] the FCA in its Occasional Paper on access to financial services in the UK and the report of the House of Lords Select Committee on Financial Exclusion. In this context, ‘exclusion’ refers to a process whereby people encounter difficulties accessing and/or using financial services and products in the mainstream market that are appropriate to their needs and enable them to lead a normal life in the society in which they belong.

For the purposes of this evidence, we would define ‘basic level of service’ as service pertaining to basic financial products from which certain groups of consumers may or may not be excluded, i.e. a basic transactional account or a credit facility.

As a general point, it is our view that the key elements to overcoming barriers to achieving good consumer outcomes and greater financial inclusion in the UK are:

• broader collaboration—a joined up approach between all stakeholders (firms, regulators, the government, consumer organisations) to ensure that all customers have the chance to access the services they require, with as few barriers as possible;
• financial education—enhanced financial literacy and capability, often an important prerequisite to tackling exclusion;
• improved awareness of alternative routes to entering the financial system and accessing services; and
• smarter communication of the rationale behind banking decisions and the range of alternative options that may be available to an individual.

The banking and finance industry has made good progress on a range of the issues that drive financial inclusion and affect access to financial services, including the launch of the fee-free basic bank account (which supports both an agreement between the government and the banking industry regarding their provision[20] as well as meeting the requirements of the EU Payment Accounts Directive[21]), ongoing work to deliver the recommendations of the Payments Strategy Forum[22] and enhanced work on the provision and servicing of credit.

Budget 2018 also recently announced a series of initiatives to support the granting of affordable credit, including an affordable credit challenge fund, a no-interest loans scheme pilot, breathing space for people in debt and support for the credit union sector. We are contributing to these discussions via participation in the Financial Inclusion Policy Forum.

Financial inclusion is a key consideration for the financial services industry and one that becomes ever more pertinent as we enter a more digitalised age. The advent and continuous evolution of digital as a communication and engagement model – across the private and public sectors – has transformed consumer engagement with technology, but also consumer engagement with their financial service provider. At the same time, while the move towards digitisation of financial services offers many benefits – increased access to services at all times of the day or night, lower costs and improved accuracy and efficiency, enhancing customer outcomes – it is vital to ensure that no one is left behind; that digital is harnessed in order to improve access to banking and other financial services.

This could mean that non-digital channels should continue to exist and be progressed; it could mean that greater effort should be focused towards helping people develop the necessary skills to digitally engage; it could mean thinking about the customer journey in new or more holistic ways.

•          Many promising existing digital solutions will be rolled out further, for example, video servicing, pre-paid cards, financial management apps.

•          There is strong potential in new digital solutions such as Open Banking, which can be used to improve product innovation, encourage budgeting and cut costs.

•          ‘Omni-channel’ experiences (the seamless transition from one channel to another without disruption to the customer journey) can improve convenience and help to serve the needs of those unable to make full use of digital channels, for example due to disabilities or age-related preferences.

•          Co-design with customers can be the key to addressing vulnerability and inclusion issues.

Our new report Financial Inclusion in a Digital Age, explores how digital and a collaborative approach to understanding consumer benefits and how these could be attained in the short, medium and long term, can help deliver an enhanced vision of inclusive customer journeys and outcomes.  

There are challenges ahead but there are also significant opportunities for the industry to leverage inclusive design principles, to achieve better access, inclusion and support for existing and potential customers. Cross-industry collaboration and potentially government intervention will be central to delivering on the digital opportunity.

See also our response to 2b and 2e on addressing potential barriers to access.

a. Examine which customers can be most disadvantaged when bank branches close and consider whether there is evidence to suggest that bank branch closure leads to increased financial exclusion.

b. Consider how financial services providers plan to cater for customers who will no longer have easy access to a bank branch.

The way customers are choosing to do their banking is changing rapidly, with ever-growing numbers opting to use new technologies to manage their money at a time and place that is convenient to them. While branch visits have fallen by a quarter since 2012, they are still an important part of local communities, and banks want all customers to be served, so the decision to close one is never taken lightly.

The Access to Banking Standard, first introduced in May 2017, sets out how customers should receive timely and improved notification and support once the decision has been made to close a bank branch.[23] The Standard sets important expectations of how customers should be supported and kept informed throughout any closure process so that no customer is left behind. The Standard also requires firms to provide specialist assistance to those who need it, to access online or mobile banking services, or to explore alternatives.

In its independent review of the Standard between November 2017 and March 2018, the LSB found that overall compliance by the banks is good. Its summary report made several recommendations so banks can continue to improve how customers are served,[24] and we are working with our members to support delivery.

As well as investing in new ATMs, mobile vans, digital skills and other initiatives, all the major banks offer customers access to everyday banking services at 11,500 Post Office branches across the country. Earlier this year, we and the Post Office set out a five-point plan agreed with the Economic Secretary to the Treasury to raise awareness of these services, recognising there was scope for improvement.[25] 26 out of 27 firms participating in the Banking Services Framework Agreement agreed to take part in the plan.

1. Actions to raise awareness of banking services available at the Post Office

• Two trial media campaigns ran—in northwest England and in Dumfries, Galloway and East Ayrshire—in October 2018. The regional campaign incorporated out-of-home and radio advertising. The local campaign incorporated local press and door drop to all homes within a 10-mile radius of a post office.
• During the same period, the Post Office ran an in-branch campaign to promote awareness of the banking services across all of its branches.

2. Actions to support specific communities

• A local “below the line” awareness campaign took place in libraries and AgeUK Friendship Centres and with Age Scotland’s community partners.
• A letter was sent to all MPs advising the services available at the Post Office, followed by a parliamentary drop-in session for those MPs within the media-campaign areas on 1 November.
• In areas where a bank branch closure is imminent, that bank and the Post Office will continue to work together to raise awareness of the services available at nearby post offices.

3. Promotion of the Post Office as an integral channel for day-to-day banking

• Participating subscribers to the Framework Agreement have reviewed their collateral and made amendments, where possible, to their websites, brochureware and telephony scripts where the banking services provided by the Post Office are detailed.

4. Enhanced support for vulnerable consumers

• Specific approaches to reaching vulnerable customers were trialled in the two media campaign areas.
• We are working more widely with our members to implement the Financial Services Vulnerability Taskforce recommendations, including best practices for identifying and supporting vulnerable customers. A specific example of this is ensuring that staff in bank branches due to close can provide more detailed information about the local post office, such as opening hours and accessibility (e.g. whether there is step-free access). In many cases, vulnerable customers are met and assisted by staff in both bank branch and post office to fully understand how each customer’s specific needs can best be met.

5. Monitoring of awareness and likelihood of use of the banking services at the Post Office

• The Post Office led pre- and post-media-campaign awareness monitoring for the two trial areas.
• Questions relating to the ongoing monitoring of awareness and likelihood of using the service have been added to Ipsos-Mori and SME Finance Monitor surveys.

We and the Post Office will submit a joint progress update to the Economic Secretary to the Treasury in the New Year. We will provide a copy to the Treasury Committee.

c. Examine how providers ensure that their marketing, communications and support services are accessible to vulnerable consumers, including consumers who have low literacy levels.

The financial services industry has demonstrated a strong desire and shift to becoming more customer centric in its communications in recent years. Banking in particular is undergoing rapid change, driven by evolving consumer habits and preferences, insight provided by behavioural economics and the widespread availability of new opportunities to engage through a wider variety of media and devices. The spread of smart devices and the rise of mobile and digital banking services are just one facet of these changes, but one that signals a clear evolution in the way that customers engage with their banking service providers.

Over the last few years, firms have made huge progress in innovation via the use of mobile and online banking, which serve a wide range of people with disabilities as well as those who simply find it easier to use some of these technological advancements. There are many examples where firms are meeting accessibility standards. In terms of printed material, many have introduced graphic icons to help illustrate visually to consumers copy themes, product features and benefits. Websites are made device-adaptive, and increasingly firms are upgrading their websites to meet existing guidelines and standards such as W3C’s Web Content Accessibility Guidelines WCAG v2.0 AA. Some firms are considering using tablets and/or intranets to show short videos during customer appointments with local advisers and on public websites to communicate mandatory information in a compliant and engaging way designed for customers to easily comprehend. High-definition video technology to interact with customers has also progressed within some firms, with abilities to share screens and print documentation, while many firms are also offering translation support for those for whom English is not a first or main language. Around 9,000 ATMs in the UK are now equipped with ‘audio assistance’; video conferencing facilities are being introduced for more complex services; cheque imaging, specially designed cards with braille markings, mobile banking apps using biometric technology such as voice and touch recognition, heartbeat authentication and text-conversion software are but a few of the recent innovations to help bring about significant improvements to security, ease of access, empowerment and a better experience for all consumers.

Firms have also progressed in their thinking on product and service design. Design is no longer focused strictly on specific services; rather, many firms are designing everything they do in a way that gives channel choice, allows for preferred communication routes and caters for exceptions for those who need to access services in a different way. Examples include delivering services such as sign-language interpretation in branch and for customers at home or instant messaging within mobile banking, allowing people with speaking and hearing difficulties to communicate independently with colleagues. In this way, innovation and design centre on the way in which banks enable customers to interact with them, regardless of any impairment.

The industry is also actively developing its approach to vulnerable customers. Low literacy is a known skills gap in the UK, and many firms are applying Easy Read or other accessibility guidelines to their written material. At the same time, it is recognised that consumers are often reluctant to disclose vulnerabilities, and this can make it difficult for colleagues to communicate with them in a manner that is helpful or effective to the customer. It can also be challenging to develop approaches that meet the very specific needs of a customer or a small cohort of customers may have. While there is a range of guidelines and standards available, each addressing the service needs of specific customer cohorts (for example Alzheimer’s sufferers and those with mental-health issues), these do not necessarily align with each other, nor are they necessarily scalable to wider-ranging adjustments or able to cut across a range of needs.

More needs to be done in terms of facilitating structured conversations with firms seeking to innovate, to provide both controlled testing environments and greater clarity and comfort regarding what is compliant and helpful to the wider spectrum of customers. The FCA’s forthcoming guidance on the identification and support of vulnerable customers is also a potential solution. We recently worked with members to deliver on the industry’s commitment to publish voluntary information about personal current-account services for customers including those in potentially vulnerable circumstances across the four key drivers of vulnerability supported by the FCA in its definition.[26]

We also maintain that there is a need to continue a wider discussion on potential innovation, in an upstream, cross-industry environment, to explore developments in principle and to identify common issues or barriers on an ongoing basis. For example, while we await the final text of the European Accessibility Act affecting all payment terminals,[27] members have a number of concerns that can hold true across support services.

• The focus on specific elements of product interface does not guarantee that a product would be accessible, only that it would meet these requirements.
• A specific set of requirements related to specific functional impairments could lead to products and services that are inaccessible to people with different disabilities and vulnerabilities. Some of the accessibility proposals pertaining to physical impairments tend to conflict with those sought on behalf of people with cognitive impairments and mental-health needs, for example.
• The Act could risk the unintended consequence of making the continued provision of certain services or the addition of further functionality to devices such as ATMs and other self-service devices significantly more challenging for banks.
• While firms now share best practice much more openly than in the past, accessibility and customer service more widely remain a competitive space for them. As such, this may foster innovation leading to better experiences and outcomes for the entire customer base.

d. Consider the trends on the use of the Post Office services in areas where bank branches have closed and examine what role the government could play in maintaining the Post Office network to provide shared services.

e. Consider whether there are barriers to participation which lead to consumers not having a bank account.

High-street banks have voluntarily operationalised the basic bank account agreement with the government since January 2016. Under the EU Payment Accounts Directive, all UK banks have had an obligation since September 2016 to consider applications for a ‘payment’ account by any EU consumer equally and without discrimination. Where other accounts are unsuitable, including for those currently excluded from mainstream banking, a basic bank account will be provided. There are some 8 million such accounts in operation, and providers report periodic data on account opening and stock flows to HM Treasury, which are published.

Citizens Advice has previously conducted mystery-shopping reviews of the process for applying and opening a basic bank account. Its 2017 report included recommendations to improve access to basic accounts, including their visibility on public websites, colleague training and processes for customer identification and address verification where non-mainstream documents cannot be provided.[28] Since then, firms have made improvements across all areas covered in the recommendations.

Potential customers can apply for a basic account, including the fee-free account, online as well as via other channels for a majority of providers. A number of our members are also supporting HM Prison and Probation Service via the Offender Banking Scheme by directly partnering with prisons across England and Wales and enabling applications for bank accounts by offenders shortly before their release.

We also worked with members, Toynbee Hall and Citizens Advice over 2017 to bring greater consistency across the banks on the range of documents they consider for identification- and address-verification purposes (ID&AV). This work focused on consumer cohorts deemed to be typically excluded due to lack of more mainstream ID&AV documentation, for example low-income households, those dependent on care, refugees and asylum seekers, homeless people and those with physical or other disabilities.

There will be cases where applications for a bank account may be rejected. Victims of modern slavery are often excluded, at the point of surviving their experience, from re-engaging with society due to their immigration status and “criminal” tagging. This is an area where opportunities to break the cycle of abuse for victims so that they have an opportunity to re-integrate into society could be collectively explored.

Electronic identification (e-ID) will also likely have a role to play in achieving easier access and removing the risk of exclusion from a basic account. This is particularly evident as more government processes move online, including the application process and outputs for Universal Credit. It should be noted that efforts to date have not managed to address the cohorts already excluded on this basis. At the same time, the increasing requirements for stronger customer authentication are likely to put up more barriers to access where consumers are not able to offer robust proof of who they are or where they live. We have provided feedback to the Department of Work and Pensions (DWP) on the content and requirement for security features of the new Universal Credit statements, which could enable a wider section of the industry to accept these as proof of identification or address. We would welcome further engagement and collaboration on this matter.

f. Evaluate the systems and controls in place for Power of Attorney at financial services providers.

As noted above, we have worked with our members to deliver recommendations under principle 5—easy for friends and family to support—of the Financial Services Vulnerability Taskforce recommendations. While the major retail banking providers have volunteered to implement these by March 2019, we will be working over 2019 to encourage more members to commit to deliver the Taskforce principles, subject to their alignment with the FCA’s forthcoming guidance on the identification and treatment of vulnerable customers.

In parallel, we have been developing with members approaches to tackling financial abuse, including abuse by attorneys or other formal delegates. We have recently argued that improved controls should be put in place by the Office of the Public Guardian (OPG) to check and verify the validity of Lasting Power of Attorney (LPA) applications, specifically to detect applications that have been made under coercion or in any way fraudulently or where the donor has lost capacity. These controls could help detect and prevent financial and domestic abuse, particularly of vulnerable people or those with a deteriorating or fluctuating mental capacity.

We have welcomed[29] the government’s thinking outlined in the joint consultation by the Home Office and the Ministry of Justice on transforming the response to domestic abuse.[30] We recommend that the government focus some of its efforts on improving the identification of domestic abuse, including economic or financial abuse, to agencies and groups associated with these processes including Jobcentre staff, DWP including the Appointee service, OPG, social services, Police Community Officers and any care-home associations. Any training within agencies to improve the identification of financial abuse should be supplemented with clear guidance on next steps in response to this identification. It is also worth pointing out that some of these groups may face resource challenges in supporting victims. Dedicated resources would be beneficial in helping to cope with the additional demand of new legislation. Our members have also indicated that among the few places victims are allowed to go on their own are doctors and the NHS. Therefore, this is also a sensible place to focus government efforts to improve the identification of domestic abuse.

In addition, we would suggest greater government effort needs to be directed toward educating people, especially at a young age, about fraud and financial abuse: what it looks like and how to stay safe. We believe improvements could be made in the following areas:

• active monitoring of DWP Appointees for financial abuse rather than simply relying on external reports of suspicion. We understand that application processes may be particularly relaxed around the corporate Appointees that might affect elderly financial abuse; and

• a central register of LPAs and Court of Protection (CoP) Deputies operated and managed by OPG and updated in real time. This would enable firms and the public to cross-reference LPAs presented to them and identify any invalid LPAs on the spot, for example where the LPA has been removed because of abuse. This would enable the immediate termination of authority to act on the donor’s behalf on the ground and across multiple organisations that are currently not notified in any way about the removal of an attorney until a new attorney requests to register a new LPA for the same donor. We believe that an LPA and CoP register with real-time updates would be helpful in reducing fraud and economic abuse while enabling better monitoring and preventive control of potential abuse on accounts where third parties are involved. OPG does not currently confirm whether abuse has been found on an LPA, and the financial-service provider that reported the suspicion of abuse is not able to apply further protections to the donor’s accounts. A central register capturing all live LPAs would help firms regularly scroll for any changes such as removal of LPAs, for example where abuse has been found. Our Financial Abuse Code of Practice includes principles by way of a protocol to report suspicion of abuse to OPG and other relevant authorities.

g. Examine how financial services providers comply with equality legislation and the mechanisms for enforcement.

See evidence under 2c above.

h. Evaluate how regulators hold financial services providers to account for how they treat vulnerable customers, and how regulators instruct financial services companies to comply with equalities legislation.

The FCA outlined in its Approach to Consumer document its high-level expectations of financial-services firms with respect to the treatment of vulnerable customers, including its approach to firm conduct and consumer harm in financial services. The FCA has also committed to consult on guidance for the identification and treatment of vulnerable customers in 2019.

UK financial-services firms adhere to rules under the Equality Act 2010, which covers a wide range of disabilities including physical or mental impairments that have a substantial, adverse and long-term effect on an individual’s ability to carry out normal day-to-day activities. The Act follows a principles-based approach and requires firms to make ‘reasonable adjustments’ so disabled customers can access services.

The FCA does not have a specific responsibility to ensure access for all consumers. However, it does have regard to how easy it is for consumers to access financial services when advancing its competition objective and also when applying its competition duty. The FCA also has obligations under section 149 of the Equality Act. For example, it must, in the exercise of its functions, consider whether market failures may lead to a lack of access and whether interventions may be necessary to improve or remedy the situation.

i. Evaluate how fintech and technological innovation could help those who cannot easily access physical financial services branches.

Technological innovation can help customers access financial services where they cannot readily access physical branches (see also earlier comments around accessibility and innovation). Different firms offer a different range of services and products but some key examples include:

• banking apps offering increasing functionality, for example payments, statements and cheque imaging;
• customer-service support by video-conference;
• online ‘chat’ facilities with bank colleagues;
• product and financial guidance; and
• financial management and budgeting apps.

Open Banking should, in future, widen the scope of such apps by allowing fintech firms to access more customer data to inform advice (‘Account Information Services’). We are also likely to see growing robo-advice online as analytics develop, while e-ID could enable a wider range of online/app services. In this context, we would highlight the importance of government initiatives to develop digital skills and increase internet access to help all UK citizens effectively access internet-based services. Of course, traditional avenues are important, too, as not all customer wish to use digital channels.

At the moment, fintech, as an expression of Artificial Intelligence, seems focused on big data and machine learning. Machine learning could offer the possibility of considerable benefits in the provision of financial services. For example, it could make it easier to evaluate customer choices by means of an audit trail of an application’s interaction with the customer if the provider contributed to that outcome. It could, for the same reasons, remove or lessen human interaction with the customer. While there may be significant benefits in greater leveraging of machine learning and predictive analytics, the technology is new, untested and easily superseded. In an environment of frequent change, there could be wider market-imbalance implications.

3. Do vulnerable consumers pay more for financial services products?

a. Examine the effectiveness of procedures deployed by financial services providers to ensure that customers properly understand the products that they are purchasing, including those who have low literacy levels.

See evidence under 2c above.

b. Examine whether vulnerable consumers pay prohibitively more for certain financial services products, including travel and home insurance.

Firms consider vulnerable customers when designing and servicing products. The support needed depends on the nature of the customer circumstances, ranging from challenges to understanding financial matters in general to specifics around financial terminology. The vast majority of firms have vulnerable-customer policies.

We continue to work closely with the FCA on the measures firms have in place, and authorised persons are required by regulation to treat customers fairly (see FCA Principle 6: “A firm must pay due regard to the interests of its customers and treat them fairly”) no matter which financial product they are providing. In addition, the FCA is also developing guidance on its expectations of firms when dealing with customers in vulnerable circumstances, due for early 2019. The vulnerable-customer agenda is wide-ranging, and individual cases will arise that require judgement and not a standard process or approach.

The FCA’s Discussion Paper on price discrimination in the cash-savings market highlights its concern about the impact of providers’ pricing strategies on vulnerable customers. We note that many customers will be on back-book products not because they are vulnerable but because they choose to do so. Due to the variation among vulnerable customers, it is also difficult to prescribe a solution that would benefit them all. There is a need to maintain flexibility in to order adapt to each customer’s circumstances.

While we support the FCA’s broad objectives of fair treatment and transparency, we are not aware of specific evidence that indicates consumer harm due to customers being compelled to remain on lower rates, whether by barriers to switching or lack of information about what else is available or how to get it. Our response to the FCA therefore recommended the following approach.

• Firms should ensure existing demand-side remedies are fully and fairly embedded.
• FCA supervisory work should review across firms for consistency and effectiveness.
• The FCA should use its existing supervisory powers to intervene bilaterally in relation to firm pricing strategies where it believes these are failing to treat customers fairly.
• Firms should consider what additional support should be provided to back-book customers in line with their existing vulnerable-customer policies, as amended in response to the FCA’s forthcoming guidance. This would see firms more actively reviewing their back-book customers, for example those with large account balances or who are relatively inactive.

c. Consider whether vulnerable consumers have access to appropriate and affordable credit.

The design of credit products will ensure that they are inclusive for all customers. Where lenders are aware of a customers’ vulnerability, these circumstances will be taken into consideration in assessing the suitability and affordability of the credit product. Lenders recognise that vulnerability can be a fluctuating condition, and the vulnerability of the customer over the life of the product will be a consideration.

For a lender to offer credit, it must undertake a thorough creditworthiness and affordability assessment (assessing a customers’ ability to afford repayments) as required by the FCA’s Consumer Credit Sourcebook.[31] This requirement is irrespective of any potential vulnerability of the customer and establishes that the sustainable repayment of the credit has been assessed. The assessment of the creditworthiness of the applicant will be a key determinant in assessing whether credit will be provided to the applicant, and the perceived risk is typically reflected in the pricing of credit.

Lenders also regularly contact customers who have maturing interest-only mortgages to ensure they have plans in place to repay the capital or discuss alternative solutions. Lenders will typically initiate this contact a number of years before the loan matures. Whilst making contact with borrowers who are more reluctant to engage remains a challenge, there is also evidence that lenders are seeing greater success here, and the vast majority of borrowers who do engage have repayment plans in place. Repossession is always a last resort. As at 2017, of the total number of interest-only mortgages that reached the end of their term but did not redeem, only 0.4% were repossessed. UK Finance recently published a new interest-only toolkit for members. This toolkit builds on the previous one from the Council of Mortgage Lenders and is a resource to provide insight and shared experience from a range of mortgage lenders. This is so that all lenders are able to refine their communication and operational policies to meet the needs of their interest-only borrowers and encourage them to engage.

As noted above, we and our members adopt the FCA’s definition of a customer in vulnerable circumstances. This definition of a vulnerable consumer as someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care, does not of itself exclude someone from accessing credit or specific credit products. A customer’s vulnerability is not directly correlated to their creditworthiness or financial standing.

One of the four key drivers of vulnerability identified by the FCA is capability (low knowledge of financial matters or low confidence in managing money). Consumers with low financial knowledge or acumen may not necessarily optimise their ability to compare or access credit products in the market. This could be due to their lack of knowledge of the credit-application process or a lack of awareness or inability to shop around. As identified above, financial capability and awareness of customers is a key enabler to help them optimise their ability to access financial services. We anticipate the new Single Financial Guidance Body to work with financial services to leverage touch and trigger points to help get impactful messages to consumers at times when they are receptive.

We are a member of the government’s Financial Inclusion Policy Forum. This has identified ‘access to affordable credit’ as an area of focus, and a series of initiatives on support for affordable credit were announced in Budget 2018. We recognise that areas could be improved to support financial inclusion and access to affordable credit. These criteria could help all consumers and are not only applicable to vulnerable customers.

One significant area is data and the scope to increase the availability of reliable and predictive non-standard data that will enhance lenders’ ability to make accurate affordability and creditworthiness assessments. New data sources have the potential to give more consistent assessment of whether a customer can afford the repayments, reduce the advantage of incumbent banks and make the market function more effectively, as well as give better customer outcomes

We have long argued that the availability of HM Revenue and Customs income and benefits data would facilitate better decision-making by lenders. Non-credit data series that demonstrate the payment profile of a customer over time, for example rental or council-tax data, can also support better decision-making and help customers with a limited credit history at a credit-reference agency to access credit. The government’s Rent Recognition Challenge[32] and Affordable Credit Challenge Fund initiatives have been established to explore how data availability can be enhanced.

d. Evaluate the impact of reducing the number of free-to-use ATMs on vulnerable consumers.

In October 2018, the PSR directed the operator of LINK to maintain the broad geographic coverage of the free-to-use ATM network in the UK, to meet service-user needs and to ensure that it has the resources to do so. The PSR considers it is necessary for it to have clarity:

• on the scope of LINK’s commitment;
• on the terms of the operator of LINK’s procedures, processes, policies and measures;
• that certain minimum requirements will be complied with by the operator of LINK; and
• that LINK will secure such expertise, resources, equipment and/or software that may be required from time to time to enable it to fulfil its commitment.

The PSR requires regular detailed updates from the operator of LINK to enable it to assess whether LINK’s strategies are meeting—and continue to meet—consumer needs.

LINK’s commitment is to maintain a free-to-use ATM within 1 kilometre of the next-nearest ATM (i.e. to protect the existing footprint) unless there is a post office within 1 kilometre. The PSR supports this approach. 

The cost of this commitment is largely covered by a 20p-per-transaction interchange fee. However, a £4m additional cash call on the issuing banks will be used to reinstall already closed ATMs and preclude the removal of extreme-low-use machines. The banks have committed to support this cash call, which would provide £20,000 per ATM to cover installation and maintenance for four years. 100 sites have been identified, with 100% contingency/future-proofing. 

e. Evaluate how regulators assess whether financial services providers are providing products to consumers at a fair price.

Regulators have a wide range of tools available to them to achieve their overarching strategic objective of ensuring that the market functions well, which includes promoting effective competition in the interests of consumers and ensuring an appropriate degree of protection for consumers.  To deliver against its strategic objective, the FCA has a wide range of investigative and enforcement powers that it can apply.

To evaluate whether the market is working well for consumers, the FCA is able to conduct deep dive analysis of the market or specific products. This could be through thematic reviews (to obtain a better understanding of the market and inform any further action /work); Consultation/Discussion papers (to inform and support proposed policy changes); and/or market study (to undertake a deep dive into specific aspects of the market and identify if / what interventions are required). The evaluation approaches will use not only qualitative research, but also typically includes quantitative analysis of a customers’ behavioural data to develop a fact-based evidence to support any actions or policy they might see as appropriate.

We believe that the current regulatory regime ensures appropriate price transparency in retail financial service markets.

In the mortgage market, customers are made aware from the outset of the terms of the mortgage, including the expected increase in cost at the end of the initial product term. The terms by which this is done are set out in the FCA Handbook. This is described in monetary terms to aid understanding. Customers are notified in advance of any rate changes, and they also receive an annual statement detailing amounts paid over the year. In addition, most lenders will write to their customers to let them know when their fixed deal is due to end and offer an alternative product. This valuable and ever-evolving work demonstrates that the industry is determined to communicate more effectively with customers. Similarly, where customers sourced their mortgage through a broker, we are seeing brokers contact customers to offer a review of their mortgage needs.

The FCA’s Cash Savings Market Study in December 2015 observed that the market was not working well for consumers and concluded that:

• large numbers of accounts opened long ago were paying lower rates
• there was a lack of transparency, with little information about alternative products
• consumers were put off switching by expected hassle and low gains, and
• large personal-account providers had considerable advantages

The review was extensive and underpinned by substantive data analysis and consumer research, including a number of randomised control trials which were supported by several financial institutions.

The FCA concluded the market study by introducing a number of remedies, including:

• improved product information, including a new Summary box for key product features making it easier for customers to compare cash savings products prior to purchase
• increased transparency of the current interest rate applying to an account through inclusion on statements and relevant web pages
• faster internal switching between products offered by a customer’s existing provider, and
• advance customer notifications of any interest rate cut (subject to a deminimis of £100 balance) no later 14 days in advance of the rate reduction

The FCA is currently looking at fair pricing in financial services. We suggest the Committee take the FCA’s findings into account in its recommendations.

The consumer credit market is very competitive, with firms competing for customer business. The ability for customers to obtain pricing quotations, from a number of different lenders easily and accurately, has been enhanced through the growth of price comparison websites. The regulator has the ability to assess the effectiveness and accessibility of price comparison websites in allowing direct pricing comparisons and driving competition. To improve competition and transparency of pricing, the regulator mandated the development of a price-comparison website for the high-cost credit sector.

The FCA has identified a potential concern regarding the treatment of existing customers as part of its business plan. Industry has worked with the FCA to implement a series of actions and rules to raise awareness of the behavioural use of their account to the customer, including: Raising awareness of when a promotional or offer rate comes to an end;  the price of their product changes, or key product features are changed that adversely affect the customer; and providing an annual, or more frequent, summary of the costs of using the product. These timely interventions are designed to ‘nudge’ the customer to consider if the product features and associated costs remain appropriate for their needs.

The regulator has also demonstrated its willingness to intervene in pricing issues in consumer credit markets.  This is both through direct pricing intervention and indirect intervention to raise customers’ awareness of the cost of the behavioural use of their product and to consider if an alternative provider, or product, could be more suitable for their requirements.

Examples of direct price interventions include on high-cost short term credit (introduction of a pricing cap where harm was identified) and on Rent-to-Own with the regulator currently consulting on the introduction of a total credit cost cap (The regulator is consulting on the ban of the sale of extended warranties alongside the sale of the credit agreement, demonstrating that it has powers to intervene where it seems harm in the overall costs to the consumer). The regulator is also currently considering its policy approach to other forms of credit that it considers to be ‘high-cost’ and the output from this review is expected before the end of Q4 2018.

Examples of indirect interventions include outputs from the recent Credit Card Market Study. The FCA developed a comprehensive evidence base, including extensive consumer research; information requested directly from credit card issuers (including financial data on performance, strategy documents and business models); and account-level data (based on some 34 million consumers over a five year period). A series of voluntary remedies have been implemented during 2018. 

The FCA found that competition was working fairly well for most customers.  Firms compete strongly for custom and there are a range of promotional offers available, with price comparison sites playing an important role.  The FCA did not find evidence that firms were targeting particular groups or behavioural types with a view to cross-subsidising others. 

The regulator expressed concerns about the scale of unaffordable credit card debt.  It considered whether a cap on interest charges should be introduced, but concluded that there were preferable alternatives, leading to the implementation of a remedy (‘CONC’ rules) for customers experiencing persistent credit card debt.  This sees a series of escalating interventions, designed to encourage customers to pay down their borrowing quicker.

Submitted December 2018