COVID-19: Pressure Points: FCA issues ‘Dear CEO’ letter with update to retail firms (UK)

The Financial Conduct Authority (FCA) has issued a ‘Dear CEO’ letter (the letter) with an update on key issues in light of COVID-19 to firms providing services to retail investors. In addition to the measures it has taken with the Bank of England (BoE) and HM Treasury (HMT), the FCA has considered many requests for forbearance and regulatory adaptations from firms and trade associations, some of which are discussed further below. The FCA has implemented a “significant package of reprioritisation and deprioritisaion of regulatory work” to allow firms to concentrate on their COVID-19 response efforts and protecting their consumers and has indicated that it will continue to update its approach in response the crisis.

The FCA will generally look favourably on forbearance requests for changes which support firms and consumers (some of which it will have the power to make immediately; others which may require co-ordination between the FCA and other UK Government or European agencies), and will only consider requests where there is a genuine need to help consumers or which, for example, would support the FCA’s response to the crisis.

Next steps for firms:

  • In light of the impact of COVID-19 on firms’ operational resilience, the FCA re-emphasised its expectations for firms to focus strongly on supporting and serving consumers and small businesses during this time. The FCA also expects firms to be actively managing their own financial resources/resilience (and in particular liquidity), with firms notifying the FCA immediately if they expect to face financial difficulties.
  • Where firms are re-directing resources due to reduced levels of staff, they should have regard to the FCA’s strong focus on consumer protection. Firms should consider documenting how these decisions are made, with the aim of allocating resources to achieve consumers protection as far as possible during this time.
  • Firms should keep up-to-date with developments by regularly checking the FCA’s website to ensure they are aware of the regulations and rules which continue to apply to them. Firms should also remain vigilant of scams which are increasingly prevalent during the COVID-19 crisis; both the FCA and National Crime Agency have released warnings on rising fraud levels and firms have a responsibility to ensure that consumers are protected.
  • Firms may also wish to consider making use of dialogue between trade associations and the FCA where appropriate to raise prevalent operational challenges with the FCA.

Key areas of focus:

In addition to the above, the FCA sets out in the letter its approach to a number of key issues to help firms manage their response to the crisis:

  • Financial resilience – The FCA has already published guidance on financial resilience and prudential issues. Importantly, the FCA has clarified that government loans cannot be used to meet capital adequacy requirements as they do not meet the definition of capital. Firms therefore need to ensure that they have other appropriate funding available to meet their capital adequacy requirements, if necessary.
  • Flexibility for client identity verification – Whilst firms must continue to comply with their obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) to verify clients’ identities, they can be flexible with how they achieve this. The MLRs and Joint Money Laundering Steering Group guidance already provide that client identity verification can be carried out remotely, and outline appropriate safeguards and checks which firms can implement to assist with verification – some examples are given by the FCA. Firms can also consider seeking additional verifications once restrictions on movement are lifted.
  • Flexibility over best execution reports – The FCA and the European Securities and Markets Authority (ESMA) have both published clarification for firms on best execution obligations in the current climate (the ESMA public statement is available here). The FCA expects firms to continue to meet their best execution obligations, including on client order handling, taking into account current market conditions when determining the relative importance of execution factors. Firms may wish to consider using different types or orders to execute client orders and manage risk during market volatility.

Following ESMA’s guidance, the FCA will not take enforcement action where a firm:

    • does not publish its RTS 27 report by 1 April 2020, provided it is published no later than 30 June 2020; or
    • does not publish RTS 28 and Article 65(6) reports, provided they are published by 30 June 2020.
  • Flexibility over 10% depreciation notifications – Firms will not be required to inform investors in every instance where the value of their portfolio or leveraged position falls by 10% or more in value. Instead, until 1 October 2020, the FCA has confirmed that it will not take enforcement action provided that a firm:
    • has issued at least one notification to retail clients within a current reporting period notifying them that their portfolio has decreased in value by at least 10%; and
    • subsequently provides general market updates online, through other public channels, and/or generic, non-personalised client communications; or
    • chooses to cease providing 10% depreciation reports for any professional clients.

In what is currently a highly volatile market, firms may wish to think about adopting this new approach which could ease the impact of repeated communications on consumers and the operational burden on themselves, or using email or phone calls to notify clients as opposed to written notifications.

  • Pause on implementation of measures – The FCA’s policy statement on pension transfer advice has been delayed until Spring 2020 and follow-up work on assessing the suitability of retirement income advice has been paused. Rules on investment pathways and platform switching provisions have already been made; these have been referred to the FCA Board for further consideration. Ongoing work with firms providing defined benefit transfer advice will continue.

 

Clive Cunningham
Clive Cunningham
Partner, London
+44 20 7466 2278
Susannah Cogman
Susannah Cogman
Partner, London
+44 20 7466 2580
Mark Staley
Mark Staley
Senior Associate, London
+44 20 7466 7621
Katie McGrory
Katie McGrory
Associate, London
+44 20 7466 2669
Patricia Horton
Patricia Horton
Professional Support Lawyer, London
+44 20 7466 2789
Cat Dankos
Cat Dankos
Regulatory Consultant, London
+44 20 7466 7494

Corporate Crime update – Autumn 2019

Welcome to the Autumn 2019 edition of our corporate crime update – our round up of developments in relation to corruption, money laundering, fraud, sanctions and related matters. This bumper edition covers a number of jurisdictions, and includes content from the summer break.

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The new regulatory regime for insurance intermediaries in Hong Kong – are you ready for 23 September 2019?

On 23 September 2019, the new statutory regime for the regulation of insurance intermediaries will take effect.

This represents the final stage of implementation of the insurance reforms which established the Insurance Authority (IA) as Hong Kong’s independent insurance regulator. The IA assumed the regulatory responsibilities of the Office of the Commissioner of Insurance in June 2017 and will take over the regulation of insurance intermediaries (agents and brokers) from the three self-regulatory organisations (SROs) on 23 September 2019. On the same day, the requirements relating to the intermediary management function, one of the control functions of an authorised insurer, will also come into effect.

The IA will be responsible for all aspects of regulation of insurance intermediaries, including issuing rules, codes and guidelines, approving licences, monitoring compliance, conducting inspections and investigations, and imposing disciplinary sanctions where breaches have occurred.

In the lead-up to 23 September 2019, authorised insurers and insurance intermediaries should conduct a final review (if they have not already done so) to ensure that they are ready to comply with all relevant requirements under the new regime.

In this e-bulletin, we provide an overview of the new rules, codes and guidelines which will apply under the new regime, as well as the transitional arrangements relating to licensing, approval of key persons in the intermediary management control function, and ongoing complaint and disciplinary cases.

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Commercial Court considers contractual discretion of bank to close customer account without notice where there is suspicion of money laundering

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HKMA rates level of money laundering and terrorist financing risk for SVF sector as medium

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The latest assessment confirms that the SVF sector continues to carry a medium level of ML/TF risk.

While the majority of the sector continues to be characterised by lower ML/TF risks (as indicated by the use of SVF products for low value transport and retail transactions), some pockets of higher ML/TF risks have emerged, arising from SVF products with functions such as overseas cash withdrawal and cross-border remittances.

SVF licensees should consider the HKMA’s report, and (where necessary) update their institutional ML/TF risk assessments and enhance their internal systems and controls.

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Moscow Corporate Crime and Investigations Newsletter – July 2019

This newsletter summarises recent Russian regulation, enforcement and court practice developments which may be relevant for doing business in Russia from a corporate crime and investigations perspective.

Additionally, this newsletter spots some US and other relevant developments which should be kept in mind by Russian businesses having foreign parents or operations.

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