Coronavirus and 10% depreciation notifications: further temporary measures for firms

The FCA published a statement for firms providing portfolio management services or holding retail client accounts that include positions in leveraged financial instruments or contingent liability transactions. It outlines a further 6-month extension and amendments to a temporary coronavirus (Covid-19) measure issued in March.

The original measure on 10% depreciation notifications took effect from Tuesday 31 March 2020 to Wednesday 30 September 2020.  The FCA wrote to firms serving retail investors about this.

The FCA is extending the previous flexibility with some amendments and will not take action for breach of COBS 16A.4.3 EU for services offered to retail investors from Thursday 1 October 2020 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.

Firms must still pay due regard 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 the FCA has concerns that potential serious misconduct may cause (or have caused) significant harm to consumers, then the FCA will consider the appropriate response, which may include opening an investigation.

The FCA is also amending its extension of the previous flexibility regarding professional investors. For services offered to professional investors, from Thursday 1 October 2020 the FCA will not take action for breach of COBS 16A.4.3 EU provided that firms have allowed professional clients to opt-in to receiving notifications.  This approach is adopted for 6 months (to 30 March 2021).

In light of potential market volatility arising from the continued spread of Covid-19 and the end of the Brexit transitional period, the FCA believes that consumers still face many difficult choices about their investments. The FCA has previously issued guidance for the messages firms can give customers on both pensions, and investments and life assurance. The FCA believes the flexibility offered in this statement will further help firms to support consumers in these uncertain times.

https://www.fca.org.uk/news/statements/coronavirus-ten-per-cent-depreciation-notifications-further-temporary-measures-firms