10% Portfolio Drop Rule to be Axed by Government
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 firstname.lastname@example.org to book a free consultation.
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