Introduced in 2018, Article 62 of the MIFID II regulations had required firms to notify clients of any drops in the value of their managed portfolios greater than 10% within 24 hours. In March 2020, this requirement was suspended by the FCA amid volatility in the markets due to the Covid-19 pandemic.
The suspension aimed to help better support firms following concerns raised about the operational burden and necessity of the rule in such a volatile period. The impact of the 10% portfolio drop rule was argued to be excessive and risked panicking consumers rather than safeguarding them. As a result, calls for the rule to be permanently scrapped were made.
In March 2021, the rule was relaxed while the Treasury assessed the requirement as part of their wholesale markets review (“WMR”). The WMR concluded that there was sufficient support for removal of the rule entirely.
What are the changes and when will they come into effect?
On the 9th December 2022, the UK Government announced it will completely scrap the rule as part of chancellor Jeremy Hunt’s ‘Edinburgh Reforms’. The reforms will see an overhaul of the European Union laws on financial services, which were retained post-Brexit.
In an explanatory note to the Markets in Financial Instruments Regulations 2022 the Government stated that:
“Regulation 2(4) removes obligations for investment firms providing portfolio management services to a retail client to inform the client when the overall value of the portfolio depreciates (Article 62 of the Commission Delegated Regulation).”
The change will come into effect in 2023 and will be welcomed largely by firms seeking to streamline the UK regulatory framework and instil growth in the financial sector.
How can Complyport help?
If you have any questions about the upcoming changes to the 10% portfolio drop rule and the Edinburgh Reforms or you think your firm may require assistance, please contact Jan Hagen via jan.hagen@complyport.co.uk to book a free consultation.
About Complyport
Complyport is a market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.
Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor.
We have successfully assisted over 1000 firms to become authorised with the FCA and EU and are providing regulatory support to over 600 regulated firms on an ongoing basis globally. With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.
Complyport’s multidisciplinary consultants possess deep expertise in their field, having acted in FCA skilled person reviews, as expert witnesses in legal cases and as expert investigators for firms or their legal advisers.
Day to day, we conduct audits and reviews of a firm’s products, processes, policies, and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Our clients tell us we live our values; we are driven, agile and collaborative.
