The Financial Conduct Authority (FCA) has confirmed it is extending the temporary measures on the requirement for firms to issue 10% depreciation notifications to investors (COBS 16A.4.3 UK) until the end of 2021.
The measures were put in place to help firms support consumers during periods of actual/potential market volatility linked to the spread of Covid-19 and the Brexit transitional period.
The measures allowed for supervisory flexibility on firms’ ongoing compliance with the requirement so long as certain criteria were met.
During this period, the FCA said it will not take action for breach of COBS 16A.4.3 UK for services offered to retail investors provided that the firm has:
- issued at least one notification in the current reporting period, indicating to retail clients that their portfolio or position has decreased in value by at least 10%
- informed these clients that they may not receive similar notifications should their portfolio or position values further decrease by 10% in the current reporting period
- referred these clients to non-personalised communications, perhaps made available on public channels, that outline general updates on market conditions (these could contextualise potential drops in portfolio or position value to help consumers meet their objectives, rather than making impulse decisions about their investments) and
- reminded clients how to check their portfolio value, and how to get in touch with the firm
The FCA announcement added: “Firms must still pay due regards to the interests of their customers and treat them fairly (Principle 6), and pay due regard to the information needs of their clients, and communicate information to them in a way which is clear, fair and not misleading (Principle 7).
“If we have concerns that potential serious misconduct may cause (or has caused) significant harm to consumers, then we will consider the appropriate response, which may include opening an investigation.”
For services offered to professional investors, action will not be taken for breach of COBS 16A.4.3 UK “provided that firms have allowed professional clients to opt-in to receiving notifications”.
During 2021, the regulator said, it will be consulting on changes to the requirement and will undertake policy work on the future of the requirement.
Industry trade association PIMFA said it welcomed the announcement.
Tim Fassam, director of Government Relations and Policy at PIMFA, commented: “This will bring much needed certainty to many firms in the current economic climate.
“The UK’s departure from the European Union meanwhile gives us, as an industry, and the FCA the chance to fully engage on the regulatory regime in Britain and to discard some rules which firms may consider cumbersome or unnecessary. It is right that the regulator examines whether certain current rules are necessary for a competitive and well-functioning UK wealth management industry.”
