The Financial Conduct Authority (FCA) has given a further six-month extension to the covid-related 10% depreciation notification rules.
The initial temporary measure expired on 30 September 2020, but as the UK faces a second wave of infections and tighter restrictions, the regulator decided to keep the current rules for another six months – ending on 31 March 2021.
The rules apply to firms that provide portfolio management services or hold retail clients’ assets “that include positions in leveraged financial instruments or contingent liability transactions”, the FCA said.
Under standard depreciation notification rules, firms are required to inform clients any time their portfolio or leveraged position falls by 10% or more.
But, considering the high volatility of the market during lockdown, industry players have argued that complying with the rules would have negatively impacted clients.
Amendments
The extension, however, comes with a few amendments.
The FCA said it will not take any regulatory action against firms for services offered to retail investors from 1 October 2020, as long as they have:
- 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.
But the regulator clarified that, although the temporary measures have been extended, companies still have a duty to pay due regards to the interests of the client and treat them fairly.
Any breach of those principles will result in regulatory action, which may include an investigation.
