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Despite being a concept first raised by the regulator almost a decade ago, there is still a lot of mystique and confusion around capacity for loss. It has never been defined in any great detail by the FCA and so our experience is that many firms are still struggling with it. This is particularly the case when it comes to articulating it to clients and ensuring they understand exactly what is being asked.
All too often we see firms telling clients that they have a ‘low/medium/high’ capacity for loss; in practice how likely are clients to understand what this means to them and their financial goals?
The aim of this paper is to look at the (somewhat limited) guidance that we’ve received from the regulator so far, and convert it into something pragmatic, to help you understand exactly what you should be doing in your firm and how to apply it to a variety of clients.