FCA orders supervisory flexibility over 10% MiFID rule

In light of the COVID-19 outbreak the FCA has announced a flexible approach on enforcing breaches of the requirement to notify clients of a 10% depreciation in value of their investments.

Under COBS 16A.4.3 firms who provide portfolio management services, or maintain retail client accounts, are required to inform clients whenever the value of the client’s portfolios or leveraged position falls by 10% or more in relation to the client’s last periodic statement. Firms must then inform clients for every subsequent 10% reduction in value. Among others, the Personal Finance Society warned that the 10% rule might constitute an operational burden during the coronavirus crisis due to volatile markets.

For this reason, the FCA has no intention of taking enforcement action where a firm:

  • has issued at least one notification to a retail client within a current reporting period, indicating their portfolio has decreased in value by at least 10%; and
  • subsequently provides general updates through its website, other public channels (such as social media) and/or generic, non-personalised client communications. These communications should update clients on market conditions, explain how clients can check their portfolio value and invite clients to contact the firm if they wish; or
  • chooses to cease providing 10% depreciation reports for any professional clients.

Not providing these letters is still considered a breach and should be recorded as such in firms’ internal systems. This FCA approach will continue for six months (until 1 October 2020).