Provision of Investment Services to Vulnerable Persons under the Code of Practice for Investment Business

Summary

This guidance note from the JFSC explains how investment businesses registered under the Code of Practice for Investment Business should identify and support clients who are, or may become, vulnerable. It expands on paragraph 2.5 of the IB Code, which requires a registered person to identify and afford appropriate protection to a vulnerable client, and links this to the wider Principles of the Code around acting with integrity and prioritising client interests.

• Vulnerability drivers: Guidance describes four categories of vulnerability driver (health, significant life events, resilience, capability) and gives non-exhaustive examples of characteristics and situations that can heighten vulnerability.
• Client assistance: Recommends practices such as involving a trusted third party, recording assessments of client understanding, offering interpreters, accessible formats and locations, and encouraging disclosure of vulnerability.
• Suitability: Expects extra care in suitability assessments and communications for vulnerable clients, including detailed explanations, attention to time horizon and risk attitude, and pausing advice where understanding is in doubt.
• Systems and controls: Registered persons should maintain policies and procedures for identifying and managing VPs, central recording and reporting (e.g. to Investment Committee, Compliance, Board), consideration of cooling-off periods, inclusion of VP risk in the general business risk assessment, and ongoing monitoring of VP strategy.
• Culture and training: Staff, particularly those providing investment services, must be aware of VP policies and receive appropriate training; treating customers fairly should be embedded in firm culture.
• Third-party exploitation: Firms should have controls to detect and prevent third parties exploiting a vulnerable client, linked to financial crime systems required under paragraph 3.2.1.5 of the IB Code.

The guidance is not prescriptive and firms may adopt alternative approaches provided they are effective and meet the IB Code's requirements. However, the JFSC states that failure to establish and adhere to appropriate VP policies and procedures will be treated as a breach of the IB Code.

Key obligations

• Registered persons must identify and afford appropriate protection to a vulnerable client as required by paragraph 2.5 of the IB Code.
• Registered persons must establish and adhere to policies and procedures for identifying, recording and responding to vulnerable persons; failure to do so is treated as a breach of the IB Code.
• Registered persons should regularly re-assess clients' circumstances so their approach to vulnerability can be adapted over time.
• Registered persons should ensure staff, particularly those providing investment services, are aware of VP policies and receive appropriate training.
• Registered persons should incorporate vulnerable persons considerations into their general business risk assessment under paragraph 3.1.3.1 of the IB Code.
• Registered persons should maintain systems and controls to detect and prevent third parties exploiting a client's vulnerability, consistent with financial crime prevention requirements under paragraph 3.2.1.5 of the IB Code.
• Where concern exists that a client does not understand an investment or its risks, the registered person or Investment Employee should not proceed and should seek guidance from the Compliance Officer or a senior member of the firm.

Applies to

registered persons under the Code of Practice for Investment Business, Investment Employees