FCA's vulnerable client rules to cost advisers £2.5k per year

FCA's vulnerable client rules to cost advisers £2.5k per year

The Financial Conduct Authority's rules on treating vulnerable customers fairly is expected to cost the industry £710m, with ongoing costs of £450m, the regulator has said.

In a retrospective impact assessment published yesterday (December 20), the FCA said the guidance will apply to approximately 52,000 firms, which was why total costs were this high.

Costs will vary across firms as the guidance applies in different ways depending on the specifics of the firm, including its size, the markets it operates in, the products it offers and the characteristics of its target market and its customers.

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The average one-off cost per firm will range from £3,200 for the smallest firms, with fewer than 50 employees, to £3.3m for the largest firms, with more than 10,000 employees.

The vast majority of firms, including advisers, will fall in the smallest firms category. 

The average ongoing cost will range from £2,400 to £2.4m per firm per year, covering research, staff training and product design, as well as adapting processes and communications.

The regulator said: “The estimated total costs of the proposal are significant because of the large number of regulated firms the guidance applies to. 

"We believe the expected benefits of the guidance are proportionate to the cost to industry, especially when compared against the number of customers potentially affected."

The regulator's Financial Lives 2020 survey found 53 per cent of UK adults had one of more characteristics of vulnerability.

The regulator said benefits for consumers will include more appropriate consumer transactions, reduction in the probability of individuals experiencing financial loss or harm, reduced psychological stress and time saved.

The rules demand the fair treatment of all consumers, including vulnerable consumers.

The regulator wants firms to adapt their actions and behaviour to ensure this is the case.

It said it had found inconsistencies in how vulnerable consumers were treated. "While some firms had made significant progress in how they treat vulnerable customers, others had failed to consider their needs, leading to harm," it said.

"Some firms told us that they would like to improve their treatment of vulnerable customers but were unclear on how to," it added.

The regulator asked firms to offer "practical and emotional support" to frontline staff dealing with vulnerable consumers and ensure the fair treatment of this client demographic was "embedded across the workforce". 

The FCA also said some firms, especially larger ones, might need to carry out proactive data analysis to identify where vulnerable customers were more likely to suffer harm or identify "patches of poor staff knowledge and performance". 

The guidance, which was published in February, saw the regulator warn that its focus on the way firms treat vulnerable clients will not be a "one-off exercise".

In the paper, it said firms could expect to be asked to demonstrate how their business model, actions and culture ensured the fair treatment of all customers on a regular basis.

The guidance could also be relevant in any enforcement cases against firms under its watch.