The Financial Conduct Authority (FCA) believes it will cost more than £1.15bn for the industry to implement its vulnerable consumer guidance over the first year, with almost £450m in costs recurring every year.
Small advice firms with fewer than 50 employees will face an average one-off cost of £3,200 and ongoing costs of around £2,400 per year to implement the FCA estimates.
The FCA believes the total one-off costs for these firms will hit £149.5m with a further £114.6m each year.
The figures were published by the regulator as part of its impact assessment for the new guidance and apply to businesses.
Costs will vary because the guidance applies to firms in different ways depending on the specific firm, including its size, the markets it operates in, the products it offers and the characteristics of its target market and its customers.
For larger firms the bill is likely to rise substantially. For example, those firms with 50 to 249 employees are likely to pay around £63,800 in one-off costs and then a further £33,300 each year.
This pattern will continue up to the largest firms with 10,000 or more employees, which the FCA believes will need to pay £3.3m in set-up costs and a further £2.4m each year.
Overall, total one-off costs are expected to be £709.6m with ongoing annual costs of £448.1m.
Expected costs
The FCA said its expected compliance costs for firms included:
- Understanding the needs of customers in vulnerable circumstances – such as carrying out or using existing data to understand characteristics in their target market/ customer base.
- Training and development – such as training and opportunity cost of staff time spent on training or sharing knowledge.
- Product and service design – such as holding focus groups or exploring resources to understand how products can better meet consumers’ needs.
- Customer service – such as adapting processes or systems to allow staff to respond flexibly, or to allow recording or information sharing about customers’ needs.
- Communications – including reviewing language in key documents or tailoring communications
- Monitoring and evaluation – such as obtaining, developing and analysing management information to evaluate whether consumers in vulnerable circumstances are getting outcomes as good as those for other consumers.
“We want customers in vulnerable circumstances to experience outcomes as good as those for other customers,” the FCA said.
“So the guidance is intended to drive improvements in the treatment of vulnerable consumers and bring about a practical shift in the actions and behaviour of firms that enables this to happen.
“It does this by making clear what the standards set by our principles mean for firms, so that firms understand what we expect of them. It sets out what firms should do to meet those standards.
“While firms are not bound to adopt or follow any of the specific actions described in the guidance, they must meet the standards set by our principles and treat customers fairly,” it added.