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FCA relaxes 10% rule and banks told to stop paying dividends

2 April 2020

The Financial Conduct Authority has relaxed its rules on the 10% drop notification to clients as financial markets continue to be negatively impacted by the coronavirus outbreak.

In a letter to retail investment firms, the watchdog confirmed that it will be flexible on its requirements until the 1st October 2020.

It said it would 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 had decreased in value by at least 10%, subsequently provides general market condition updates through either its website or other non-personalised client communication or chooses to cease to provide 10% depreciation reports for any professional clients.

The FCA said its decision followed concerns raised by firms about the impact of the rule on consumers and “the operational burden of this in a highly volatile market.”

Lawrence Cook, head of UK intermediary distribution, Sanlam, welcomed the move, describing it as proactive and sensible in the current climate.

Cook said: “Operationally it is very challenging and at a time when all mixed asset class portfolios are suffering similar falls the notification is not in itself helping to draw attention to exceptional performance of a fund or a fund manager. The broad media coverage of market falls means that the FCA can be confident clients will not be surprised or ill-informed about the likely impact on their investment portfolios.”

However, he cautioned that this would not change the responsibility advisers have towards their clients and responding to their concerns.

Cook added: “Overall, this feels like a sensible step from the regulator and shows some agility in adapting policymaking. I don’t think it sets a precedent other than the FCA being proactive and engaged. If that’s a precedent then it is a good one. This feels like a good step and something at Sanlam we welcome.”

Royal London also applauded the FCA’s decision. Senior investment development and technical manager Ryan Medlock said it will benefit clients.

He commented: “This is a sensible move by the FCA on several levels. In the context of the current market turbulence relaxing this rule should ease one of the many burdens facing advisers right now. It will also be of real benefit to clients who really don’t need to be bombarded with multiple letters to inform them their portfolio has dropped another 10% during these turbulent times.”

Banks stop paying dividends

Meanwhile, the UK’s largest banks have agreed to stop their dividends following pressure from the Bank of England to refrain from paying out close to £8 billion to shareholders in the wake of the Coronavirus pandemic.

In a series of co-ordinated announcements, Lloyds, Royal Bank of Scotland, Barclays, HSBC, Standard Chartered and Santander said they would halt their quarterly or interim dividend payments until the end of 2020. In addition, they have also agreed to cancel the payment of the final 2019 dividend to preserve additional capital.

Kevin Doran, chief investment officer, AJ Bell, said the big question would be what they are going to do with the money. Doran suggested repaying consumers for the bailout the banks received during the financial crisis by writing off debt repayments for a period of time for those worst affected by Coronavirus.

He said: “£7.5bn would go a long way to providing debt relief for the individuals and businesses that will be unable to make interest payments over the next three to six months, cancellation of share buybacks and banker bonuses would go even further. This could bring massive relief to families, ease fears of insolvency for businesses, take pressure of employers to lay off staff and ease the burden on the public purse, which is currently being lined up to subsidise the wages of furloughed employees.”

However, Adrian Lowcock, head of personal, Willis Owen, said the decision to scrap dividends would prove another unwelcome hit to investors who have had to contend with sharp drops in the markets in recent weeks.

Lowcock commented: “This enforced action has caused an immediate reaction to banks’ share prices this morning. The falls across the sector have helped drag the blue chip index sharply lower, and it is yet another significant blow for income investors, many of whom are retirees, who rely on these dividends to provide them with an income.

“Clearly we are in extraordinary times, and the banks had little choice but to comply with the wishes of the UK’s regulators, but nonetheless this is another hit to investors already reeling from the losses being seen across markets.”

Professional Paraplanner