The fair treatment of vulnerable customers should be embedded in the culture of firms, from how frontline staff deal with customers to the way products are designed in the first place, the City regulator said.

The Financial Conduct Authority (FCA) has published guidance to drive improvements in the way firms treat vulnerable customers, which should help to cut the risk of mis-selling.

There have been some good examples of a “culture of feedback and learning from the front line”, the regulator said.

The FCA’s recent Financial Lives research found 27.7 million UK adults have characteristics of vulnerability.

While there is a general principle that people should take responsibility for their choices and decisions, there are “very real” factors which may limit their ability to do so, the FCA said.

People may become vulnerable due to health conditions which affect their ability to carry out everyday tasks; life events such as a bereavement, a job loss or a relationship breakdown; low resilience to withstand financial or emotional shocks; or a lack of knowledge about money management or low levels of literacy or digital skills.

Not all people will suffer harm, but their vulnerabilities may limit their ability to make reasonable decisions or put them at a higher risk of mis-selling.

The FCA’s finalised guidance says: “We want to see the fair treatment of vulnerable customers embedded as part of a healthy culture throughout firms, not just on the front line but also in areas such as product development.

“Firms’ senior leaders should create and maintain a culture that enables and supports staff to take responsibility for reducing the potential for harm to vulnerable customers.

“They should ensure that firms embed the fair treatment of vulnerable customers in their policies and processes throughout the whole customer journey.

“We have seen some good examples where commitment comes from the top and where there is a culture of feedback and learning from the front line.”

Nisha Arora, director of consumer and retail policy at the FCA, said: “Protecting vulnerable consumers remains a key focus for us and given the impact of the coronavirus pandemic, it is more important than ever that firms get this right.

“The guidance being announced today will help ensure vulnerable consumers are treated fairly and achieve outcomes as good as other consumers.

“While some firms have made significant progress, we want to see all firms across sectors taking steps to understand and respond to the needs of their customers, particularly those who are most vulnerable to harm.

“We also remind customers to tell your providers if you have specific needs – whether that’s due to ill health making it difficult to access a service, or a recent emotional or financial shock that is impacting your finances. Doing this will help firms support you.”

Using the guidance the FCA will continue to hold firms to account for their treatment of vulnerable customers. Firms can expect to be asked to demonstrate how their business model, the actions they have taken and their culture ensure the fair treatment of all customers, including vulnerable customers.

Firms are reminded that in treating customers fairly, they should also be aware of their obligations under the Equality Act 2010. It is likely that a breach of the Equality Act, for example failure to provide reasonable adjustments for disabled people, will also be a breach of the FCA’s rules.

The FCA has also published a Memorandum of Understanding (MoU) with the Equality and Human Rights Commission (EHRC). It sets out how the FCA will co-operate and work with the EHRC on equalities issues, to help protect people in financial services markets.

Joanna Elson, chief executive of charity the Money Advice Trust, said: “The FCA’s finalised vulnerability guidance published today is a powerful call to action for financial services firms to further improve their work on vulnerability – and comes at a time when millions of people are facing difficulty as a result of the pandemic.

“Financial services have and will continue to play an important role in supporting people through this crisis. This new guidance, however, provides a crucial steer for firms on what steps they need to take now to ensure their support reflects the complexities of people’s real lives.

“While we have seen much progress already from firms in recent years through our training work, it is crucial that firms further build on this. We look forward to working with firms to bring the FCA’s expectations into reality for their customers.”