FCA Dear CEO letter to firms servicing retail investors during COVID-19 pandemic

FCA Dear CEO letter to firms servicing retail investors during COVID-19 pandemic

The interim chief executive of the Financial Conduct Authority (FCA), Christopher Woolard, has written to firms that provide services to retail investors. Woolard sets out the FCA’s approach to issues around client identity verification, supervisory flexibility over best execution and over-10% depreciation notifications, the FCA’s implementation of investment pathways and other measures, and financial resilience.

Client identity verification needs to continue, but firms have flexibility within FCA rules.

During this period, the FCA expects firms to continue to comply with their obligations on client identity verification. The Money Laundering Regulations 2017 (MLRs) and Joint Money Laundering Steering Group guidance already provide for client identity verification to be carried out remotely and give indications of appropriate safeguards and additional checks which firms can use to assist with verification. The letter sets out examples for firms.

Supervisory flexibility over best execution until the end of June 2020

The FCA has been working with the European Securities and Markets Authority on how firms should fulfil their best execution obligations in the current climate. The FCA expect firms to:

• continue to meet their obligations, including those on client order handling

• take into account current market conditions when determining the relative importance they place on the different execution factors when meeting their obligations, and the venues or brokers they rely upon to achieve best execution

• consider their use of different types of orders to execute client orders and manage risk during market volatility

The FCA has no intention of taking enforcement action where a firm:

• does not publish RTS 27 by 1 April 2020, provided it is published no later than 30 June 2020

• does not publish RTS 28 and Article 65(6) reports, provided they are published by 30 June 2020

Supervisory flexibility over 10% depreciation notifications until the end of September 2020

Firms have raised concerns about the impact on consumers and the operational burden of the requirement to inform investors where the value of their portfolio or leveraged position falls by 10% or more compared with its value in their last periodic statement, and for each subsequent 10% fall in value, in a highly volatile market. 

For a period of six months (to 1 October 2020), the FCA will not take enforcement action where a firm:

• has issued at least one notification to a retail client within a current reporting period, indicating their portfolio has decreased in value by at least 10%; and

• subsequently provides general updates through its website, other public channels (such as social media) and/or generic, non-personalised client communications. These communications should update clients on market conditions, explain how clients can check their portfolio value and invite clients to contact the firm if they wish; or

• chooses to cease providing 10% depreciation reports for any professional clients

FCA policy and implementation—pause on implementation of investment pathways and other measures

The FCA will provide updates as soon as possible on the rules around investment pathways and platform switching provisions. The FCA’s ongoing work with firms providing defined benefit transfer advice will continue. The FCA’s policy statement on pension transfer advice, including on contingent charging, has been delayed to Spring 2020. The FCA has paused follow up work on assessing the suitability of advice, which was focused on retirement income advice.

Financial resilience

Firms are referred to FCA guidance of 26 March 2020 on financial resilience and prudential issues. The letter clarifies that for firms in this sector:

• government schemes to help firms through this period can be used to help firms plan for how they will meet debts as they fall due and help firms remain solvent in the immediate period

• government loans cannot, however, be used to meet capital adequacy requirements as they do not meet the definition of capital

Source: Dear CEO letter to firms providing services to retail investors about coronavirus (COVID-19)

Related Articles:
Latest Articles: