Coronavirus (COVID-19) - FCA issues 'Dear CEO' letter to firms providing services to retail investors

On 31 March 2020, the FCA (Financial Conduct Authority) issued a 'Dear CEO' letter directed at firms providing services to retail investors (such as financial advisers, life insurance and pension providers, wealth managers, private banks and stockbrokers), but some points are of more general application.

Coronavirus (COVID-19) - changes to regulatory approach

The FCA has set out the initial measures it has taken to reprioritise and deprioritise its regulatory work in light of the COVID-19 pandemic, including how it has approached the various requests from firms and trade associations for changes to its regulatory approach during this challenging time.

The FCA explained that:

  • Changes to support firms and consumers that are within its own powers will be done in order of harm or urgency.
  • Changes requiring Governmental or European co-ordination will be pursued but may take longer to effect.
  • Changes will be refused if they are believed not to be in the interests of consumers or would hamper the FCA in managing the crisis situation.

The FCA warns that any opportunistic requests designed to undermine consumer protection will effectively provide the FCA with useful intelligence about the firms involved or conduct in the sector. 

Firms and trade associations would be wise to consider carefully any proposed requests - in particular in the light of the new obligations and standards expected under the Senior Managers and Certification Regime (SMCR).

Financial resilience and prudential issues

The FCA also signposts to its brief guidance on financial resilience and prudential issues, and clarifies that Government schemes 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, but Government loans cannot be used to meet capital adequacy requirements as they do not meet the definition of capital.

FCA policy work

There is a brief update on FCA Policy and implementation, in particular in relation to investment pathways and platform switching provisions, and its work on defined benefit transfer advice (which is continuing).

Temporary changes in supervisory approach 

  • In relation to AML (Anti-Money Laundering), client identity verification needs to continue, but firms have flexibility within the rules and a number of alternative ID methods are set out in the letter. (Although not explicitly noted, firms' responsibilities to conduct ongoing monitoring will continue to be important.)
  • There will be some flexibility over best execution reports until the end of June (i.e. no intention to take enforcement action if reports are published by 30 June 2020). The FCA signposts to the European Securities and Markets Authority (ESMA)'s public statement on the issue.
  • For firms providing portfolio management services or holding retail client accounts that include leveraged investments there will be some leeway in relation to 10% depreciation notifications until the end of September given market volatility.  During this period, the FCA does not intend to take enforcement action against:
    • firms that have issued at least one 10% depreciation notification to retail clients within a current reporting period and subsequently provide general updates through its website, other public channels (such as social media) and/or generic, non-personalised client communications, or
    • firms who choose to cease providing 10% depreciation reports for any professional clients.

We suggest that firms diarise any dates that are relevant to them and keep in mind their ongoing obligations under the Principles for Businesses, in particular their relations with the regulator (Principle 11).

The FCA reiterates that it expects firms to:

  • provide strong support and service to customers during this period.
  • be clear and transparent and provide support as consumers and small businesses face challenges at this time.
  • manage their financial resilience and actively manage their liquidity.
  • report immediately if they believe they will be in difficulty.

 

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Katharine Everett Nunns or Jonathan Kitchin in Michelmores Finance & Investment team.

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This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.