Are your Customer Bereavement Processes Fit for Purpose?

This year, the Financial Conduct Authority (FCA) is placing more emphasis on the importance of treating customers fairly than ever before. And, with the introduction of the Consumer Duty, there is a special focus on how firms handle their most vulnerable clients. In November 2023, the FCA’s Dear CEO letter noted that 50% of us will be considered vulnerable at some point in our life, equating to nearly 33.5 million people in the UK.¹

The peak of vulnerability arguably comes with the loss of a loved one, so firms can expect their bereavement management processes to come under particular scrutiny during engagements with the FCA. Recent examples have shown that the regulator can and will punish firms if such processes are not up to scratch – so how does yours fare?

Where Have Others Gone Wrong?

The FCA fined Santander almost £40 million² for failures relating to its bereavement management process whilst TSB was forced to apologise³ to its customers after mistakenly identifying them as deceased!

Generally, such failings have been due to one or more of the following weaknesses:

1. Non-existent or ineffective analysis of customer account activity, for identifying potential indicators of death amongst the client base;
2. Inaccurate determination of all funds and accounts held for a deceased customer, due to a lack of a consolidated, single view of client information; and
3. Poor management of ongoing bereavement claims, leading to slow case progression and payment of funds.

As a result, firms have struggled to effectively fulfil their obligations upon the death of a customer, sometimes leaving beneficiaries deprived of their rightfully owed money for years.

The Importance of a Single Customer View

Today, various mergers and technological advancements have left many financial services firms with a multitude of legacy account management systems in place. These systems are often not aligned, meaning certain account information can become segregated and eventually forgotten. Despite this, many firms do not prioritise initiatives to maintain an accurate single view of their customers, but, in hindsight, such initiatives could save them from hefty fines.

Without a single view, the customer may be the only individual with a full understanding of their financial position, including their suite of accounts and investments held with various firms. If the customer were to pass away, that knowledge is lost, and the firms are left to piece the puzzle together. If they cannot identify all of the beneficiary’s entitlements in a timely manner, there could be a severe penalty to pay.

What is the True Cost of Not Getting This Right?

In addition to a large fine from the regulator, an ineffective bereavement management framework can cost your business in other ways.

Consider this:
How many customers do you have? With an annual UK death rate of approximately 0.9%, how many could be deceased? Think about your aging clients, in particular. Do you check inactive accounts for indicators of death? How long have they been dormant? An average customer deposit may be up to £30,000, earning annual interest of, say, 5%. Plus, the potential requirement to pay compensation, whilst enduring reputational damage. And the costs to remediate your ineffective framework…

Over time, firms can rack up massive costs in order to fix the problems caused by poor bereavement management processes. Retail institutions with an aged customer base and a collection of forgotten  savings accounts or ISAs on their books are particularly at risk.

A Quick Self-Assessment

For a quick indication of potential issues in your bereavement management framework, answer the following questions honestly, and most importantly, consider how you can evidence your response.

1. Do you have a clearly documented and up-to-date bereavement management policy in place?
2. Are you confident in accurately identifying all funds, accounts and investments belonging to each customer?
3. Is there an effective process for obtaining necessary information from claimants, where communication has ceased?
4. Do you ensure vulnerable claimants are appropriately identified and handled fairly?
5. Do you conduct analysis on your client population to identify potentially deceased customers?
6. Do you have effective MI in place for monitoring the progress of bereavement claims to completion and identifying any issues?
   
7. Do you maintain sufficient oversight of outsourced providers?
8. Could an HMRC ISA Audit identify deceased individuals still receiving tax benefits on your watch?

If you would struggle to evidence your effectiveness in any of these areas, you should consider taking action now, before the regulator comes knocking.