The FCA has issued the following guidance to the financial services industry regarding the response that FCA expects firms to take in response to the Coronavirus (COVID-19) pandemic. The FCA has four primary concerns:

• Protection of consumers;
• Protection of industry employees/staff;
• Protection of markets;
• Resilience of firms.

The FCA guidance on responding to the Coronavirus (COVID-19) pandemic is summarised below.

SM&CR responsibilities

The FCA does not require firms to have a single senior manager responsible for their Coronavirus response. Firms should allocate these responsibilities in the way which best enables them to manage the risks they face. There are existing responsibilities specified in the Senior Managers Regime (SMR), for example SMF24 for operational resilience and SMF2 for financial resilience.

The FCA emphasises that firms should pay particular attention to its statement on Key Workers in Financial Services of 20 March 2020 and recommends that the SMF1 (or another most relevant member of the senior management team), should be responsible for the firm’s approach to their key workers.

Regulatory change

The FCA is reviewing its work plans so that it can delay or postpone activity which is not critical to protecting consumers and market integrity in the short-term. This will allow firms to focus on supporting their customers during this difficult period.

The FCA has delayed several regulatory initiatives and also scaled back its programme of routine business interactions, so that it will only contact firms on business-critical requests and responses to the current situation.

It will continue with a small number of regulatory changes which support consumers, particularly the most vulnerable, or where major long-term programmes would be disrupted.

Impact on consumers

The FCA rules already provide flexibility to firms in several areas and the FCA expect this flexibility to be used to support consumers, bearing in mind each consumers’ individual circumstances.

The FCA stated it welcomes firms taking initiatives and going beyond usual business practices to support their customers, especially relating to access to cash. When doing so, firms should notify the FCA so that it can consider the impacts and offer support as appropriate.

The FCA still expects firms to deal with complaints promptly. However, where the pandemic prevents this firms should contact the FCA. The FCA has reminded firms that they should aim to resolve any complaint within 8 weeks (15 days for payments firms). If they cannot, they should write to the customer explaining why they have not met the deadline.

Insurance Products

On 19 March 2020, the FCA published an update on expectations for general insurance firms during the pandemic. This sets out the expectations on insurers, brokers and others involved in the service supply chain.

Travel Insurance

The FCA supports firms making consumers aware of the scope of their cover and what exemptions there may be. Consumers should also be able to find this information on firms’ websites in a clear, concise way and have access to call centres.

Health Insurance

The FCA also expects firms to make clear any time period restrictions when consumers take out a new policy, for example if a policy will not pay out from 12 or 18 months of taking out a new policy.

Mortgages

On 20 March 2020, the FCA published new guidance for mortgage lenders, mortgage administrators, home purchase providers and home purchase administrators. Mortgages represent many consumers’ major financial commitment. FCA is encouraging and facilitating the granting of flexibility on mortgage payments as a way of protecting consumers.

Unsecured Debt Products

The FCA has stated its rules give firms the flexibility to act in the best interests of the customer. The FCA welcomes the steps firms have taken to offer support to customers and to encourage them to contact their bank or lender if they are experiencing financial difficulties.

The FCA wants firms to show greater flexibility to customers in persistent credit card debt. The FCA has indicated that the normal procedure for dealing with low repayments of persistent debt should be relaxed and consumers should be given until 1 October 2020 to respond to firm’s communications regarding resolution. This means that firms would not be obliged by to suspend the cards of non-responders before then.

Access to Cash

The FCA is working with the Bank of England and the Payment Systems Regulator to understand problems consumers may have accessing cash, and ensure the UK learns the lessons from other countries’ experience of Coronavirus.

UK banks have taken steps to help ensure consumers have access to cash, including the raising of cash machine withdrawal limits and the raising of the limit for contactless card payments.

Firms should continue to help vulnerable consumers access their banking services – online or over the phone. Firms should also remind consumers to be aware of fraud and protect their personal data.

Operational Resilience

The FCA stated it expects all firms to have contingency plans to deal with major events and that the plans have been tested. The Bank of England, Prudential Regulatory Authority and the FCA are actively reviewing the contingency plans of a wide range of firms. This will focus on assessment of operational risks, the ability of firms to continue to operate effectively and the steps firms are taking to ensure continuation of service to customers.

The FCA expects all firms to have read, taken account of and acted upon the issues raised in its Consultation Paper on Operational Resilience (CP19-32) issued in December 2019. The Consultation Paper can be downloaded from the following link – https://www.fca.org.uk/publication/consultation/cp19-32.pdf.

Market Trading and Reporting

The FCA has indicated that firms must consider the broader control environment as they relocate people and functions to new locations/sites or work from home.

Where normally required to do so, firms should continue to record calls, where possible. They should make the FCA aware if they are unable to meet these requirements. Firms are required to consider what steps they could take to mitigate such outstanding risks if they are unable to comply with their obligations to record voice communications.

Firms may experience difficulties in submitting their regulatory data, in which case the FCA expect them to maintain appropriate records during this period and submit the data as soon as possible.

Firms should continue to take all steps to prevent market abuse risks. This could include enhanced monitoring, or retrospective reviews.

The FCA is supportive of the recent ESMA statement regarding upcoming changes to the tick size regime for certain firms, required by the EU Investment Firms Regulation. The FCA will not prioritise supervision of the new requirements at this time. It expects firms to focus on minimising the potential for operational disruption.

Guidance issued by the FCA can be accessed or downloaded from the following link: https://www.fca.org.uk/coronavirus

List of Guidance issued by the FCA related to Coronavirus (COVID-19)

•  FCA information for firms on coronavirus (Covid-19) response, 29 March 2020
• Work-related travel – responsibilities of Senior Managers, 29 March 2020
• Statement of Policy: Delaying annual company accounts during the coronavirus crisis, 26 March 2020
• Joint statement by the FCA, FRC and PRA, 26 March 2020
• FCA’s expectations on financial resilience for FCA solo-regulated firms, 26 March 2020
• Banks and building societies – branch access for essential services, 25 March 2020
• Impact of the coronavirus on firms’ LIBOR transition plans, 25 March 2020
• Bank branch opening, 24 March 2020
• UK markets, 23 March 2020
• Announcement of preliminary accounts: technical Q&A for firms, 22 March 2020
• Key workers in financial services, 20 March 2020

Delayed Consultation Papers, Calls for Input and Planned Publications

The FCA has decided to extend the closure dates for the following published consultation papers and calls for input until 1 October 2020.

The FCA has decided to delay the following publications due before end June. The FCA will provide updates at an appropriate point.

The Coronavirus (COVID-19) Pandemic: A Summary of Recent Regulatory Developments in the EU’s Investment Services Sector and Capital Markets

Ever since the escalation of the COVID-19 outbreak in Europe, the status quo in the EU’s investment services sector and capital markets has dramatically changed. New developments emerge on an almost daily basis, while the industry is experiencing a major turmoil. Below we summarise the most important EU regulatory developments that have occurred in response to this pandemic in March.

Net short position ban and lowering of notification threshold for net short positions

Extreme adverse circumstances that constitute a serious threat to market confidence and financial stability have prompted a number of national competent authorities in the EU to ban net short positions for any shares or debt instruments listed on Trading Venues for which they are the designated regulator. Such bans were issued by the competent authorities of Austria, Belgium, France, Greece, Italy and Spain.

The net short position prohibits both short selling and any transaction that creates or relates to a financial instrument, and the effect or one of the effects of that transaction is to confer a financial advantage on the natural or legal person in the event of a decrease in the price or value of another financial instrument (meaning, among others, options, CFDs, spread bets). The ban applies irrespective of whether the transactions occur on Exchange or OTC. The only entities exempted from the net short position ban are authorised primary dealers and market makers who have applied for the exemption afforded under Article 17 of the Short Selling Regulation.

ESMA has also issued a decision temporarily requiring the holders of net short positions in shares traded on an EU regulated market to notify their relevant competent authorities if the net short position reaches or exceeds 0.1% of the issued share capital after the entry into force of said decision. ESMA considers that lowering the reporting threshold is a precautionary action, taken so that the relevant authorities can carefully monitor market developments following the coronavirus fallout.

Extension of the SFTR reporting start date

In an effort to mitigate COVID-19’s impact, ESMA issued a public statement clarifying that it expects competent authorities not to prioritise their supervisory actions towards entities subject to Securities Finance Transactions (SFT) reporting obligations from 13 April 2020 to 13 July 2020. Moreover, ESMA has clarified in an updated public statement that SFTs concluded between 13 April 2020 and 13 July 2020 and SFTs subject to backloading under SFTR are also not to be prioritised as part of the competent authorities’ supervisory actions.

Lax on requirements for recording of telephone conversations

ESMA issued a public statement clarifying that, considering the exceptional circumstances created by the COVID-19 outbreak, some scenarios may emerge where the recording of relevant conversations required by MiFID II may not be practicable. If firms, under these exceptional scenarios, are unable to record voice communications, ESMA expects them to consider the alternative steps they could take to mitigate the risks related to the lack of recordings.

Firms are expected to deploy all possible efforts to ensure that the above measures remain temporary and that the recording of telephone conversations is restored as soon as possible.

Measures specific to issuers and market transparency

Guidance regarding the accounting implications of the COVID-19 outbreak on the calculation of expected credit losses in accordance with IFRS 9

ESMA issued a public statement to promote the consistent application of IFRS in the EU and avoid divergence in practice on the application of IFRS 9 given the COVID-19 outbreak. The statement addresses the accounting implications of the measures taken or proposed by the national governments and EU bodies (for example, the moratoria on the repayment of loans) to address the adverse systemic economic impact of COVID-19.

In its statement, ESMA provides guidance to issuers and auditors, specifically regarding the calculation of expected credit losses and related disclosure requirements.

The EBA has also issued a related statement on the prudential framework and accounting implications of COVID-19. The two statements are consistent as with regards to financial reporting.

Extension to financial reporting deadlines and the importance of transparency

In light of the difficulties encountered by issuers in preparing financial reports and the challenges faced by auditors in carrying out timely audits of accounts due to the COVID-19 pandemic, ESMA issued a public statement recommending that national competent authorities apply forbearance powers towards issuers who need to delay the publication of financial reports beyond the statutory deadline. At the same time, the statement underlines that issuers should keep their investors informed of the expected publication delay and that the requirements under the Market Abuse Regulation still apply.

ESMA also highlighted that financial reporting is an important anchor for the economic decisions of users of financial information, as well as for exercising their rights to vote or otherwise influence management actions. The preparation of periodic information must continue to be carried out in accordance with the applicable financial reporting framework to ensure investor protection and to preserve the integrity and proper functioning of the EU’s financial markets.

EU-wide stress test postponed to 2021 to allow banks to prioritise operational continuity

The EBA announced that it has decided to postpone the EU-wide stress test to 2021 as a way of alleviating the immediate operational burden for banks during this challenging juncture. The final timeline for the EU-wide stress test will be communicated by the EBA in due course.

Urge to ensure business continuity

In another recent public statement, ESMA urged financial market participants to apply their contingency plans, including the deployment of business continuity measures, to ensure operational continuity in line with the regulatory obligations.

Similarly, several national competent authorities urged their regulated entities to do the same, alongside reviewing their business continuity and disaster recovery systems and making the necessary amendments based on each entity’s size, complexity and nature of business.

Extension to various ESMA consultation papers

ESMA has announced that it has decided to extend by four weeks the response date for all ongoing consultations with a closing date on or after 16 March.

Other initiatives by national regulators

The COVID-19 outbreak significantly impacted the activities of all market stakeholders, pushing them to reprioritise their efforts to address the crisis. To mitigate the impact of COVID-19, several national regulators have extended, where possible, several local reporting deadlines and other obligations. In an effort to limit the spread of the virus, some national regulators have announced working from home plans as well as suspended relevant activities such as examinations and training courses.

Furthermore, regulators are alarmed over COVID-19’s effect on the industry and are constantly gathering data across the market to understand and assess the extent of its impact with the aim of taking appropriate actions where necessary.

Extension to best execution reports

In another recent public statement, ESMA acknowledges the difficulties encountered by execution venues  and firms in preparing the general best execution reports required under RTS 27 and 28  of MiFID II. In this respect, ESMA recommends that national competent authorities take into account these circumstances by considering the possibility that:

• execution venues unable to publish RTS 27 reports due by 31 March 2020 may only be able to publish them as soon as reasonably practicable after that date and no later than by the following reporting deadline (i.e. 30 June 2020); and
• firms may only be able to publish the RTS 28 reports due by 30 April 2020 on or before 30 June 2020.

Furthermore, ESMA encourages national competent authorities not to prioritise supervisory action against execution venues and firms in respect of the deadlines of the general best execution reports for the periods referred to above.

Extension to systematic internalisers new tick-size regime

The application date of the new tick-size regime for systematic internalisers under the Markets in Financial Instruments Regulation (MiFIR) and the Investment Firms Regulation (IFR) was set at 26 March 2020. In response to developments related to the COVID-19 pandemic, ESMA issued a public statement clarifying that it expects competent authorities not to prioritise their supervisory actions in relation to the new tick-size regime until 26 June 2020, and to generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in this area in a proportionate manner.

How can Complyport assist you?

Our team of experts can offer you the following services:

• Assistance and management of FCA authorisations,
• Ongoing compliance advice and support,

• Advice on how recent regulatory changes affect your business,
• Updating your business continuity and disaster recovery plans,
• Bespoke compliance health-check reviews,
• Updating of your compliance monitoring programme,
• Advice on ICAAP and financial reporting, and
• Risk management advisory and support.

Why Complyport? 

Complyport is a regulatory compliance consulting firm supporting the UK financial services industry for around 20 years. They specialise in providing Governance, Risk and Compliance services to firms in the financial services industry in the UK and overseas. Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. They have successfully assisted over 300 firms to become authorised with the FCA and have been providing regulatory support to over 500 regulated firms on an ongoing basis at a Group level. With presence in the UK, EU and Hong Kong, 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. The team assists firms on issues relating to corporate governance, risk management, business controls, compliance and business improvement. They 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. Complyport offers full support with financial reporting, capital adequacy assessments and compliance training as well as a suite of online RegTech applications to enable a firm to demonstrate continued compliance with the regulatory obligations.

For more information on our services, please visit our website at 185.183.35.69/~complyport or contact our team at +44 20 7399 4980  or via email at info@complyport.co.uk.