FCA relaxation of 10% drop letter rule is welcomed

Andy Bell, chief executive of platform and SIPP provider AJ Bell, has welcomed news that the rules on 10% ‘investment drop’ letters will be relaxed for six months. Under MiFIDII rules, advisers must write to clients if their portfolios or investments drop by more than 10%. However in a ‘Dear CEO’ letter from the FCA yesterday, the regulator said it would be flexible over “10% depreciation notifications” until the end of September after firms have raised concerns about the impact on consumers and the operational burden in a volatile market. The FCA said it would take no action if advisers had issued at least one notification to retail clients within the current reporting period and subsequently provide general updates through websites or other public channels. Mr Bell said: “The 10% rule may be well intentioned but in times of extreme market volatility like we have seen recently the notifications are as useful as slipping a note under a cabin door on the Titanic advising that the shower has sprung a leak! They can increase customer anxiety and are a blunt instrument. The relaxation of the rules is a welcome development and will enable resources to be utilised on more important areas of servicing customers and advisers during the Covid-19 crisis.” Many other industry leaders have welcomed the move too. The Dear CEO Letter says the UK and the world in general has faced an “unprecedented set of circumstances linked to the Coronavirus (Covid-19) emergency.” The FCA says overall it will take a measured approach to relaxation of its rules but there would be no reduction which would “undermine consumer protection.” The FCA said: “We expect firms to provide strong support and service to customers during this period. Firms should be clear and transparent and provide support as consumers and small businesses face challenges at this time. “We also expect firms to manage their financial resilience and actively manage their liquidity. Firms should report to us immediately if they believe they will be in difficulty.” Client identity verification needs to continue, but firms can be flexible. For example scanned documentation sent by e-mail, preferably as a PDF, can be accepted. Clients can also submit ‘selfies’ or videos and third party corroboration from lawyers or accountants is acceptable. The will also be a pause on implementation of investment pathways and platform switching rules. The FCA says it will update its website on deadlines for a number of initiatives shortly. Work with firms providing defined benefit transfer advice will continue and the watchdog has already confirmed a delay to the ban on contingent charging. On capital adequacy the FCA confirms that government loans cannot be used to meet capital adequacy requirements as they do not meet the definition of capital. On investment pathways Mr Bell commented: “If there was ever a case study of why customers going into drawdown shouldn’t be funnelled into a single investment, Covid-19 and the resulting bear market is it. The fact that investment pathways in their current guise are outcome focused and not risk targeted is a major flaw. If they had been implemented six months ago there would be thousands of drawdown customers looking at heavy investment losses with little understanding of why they were guided down a particular path.”

FCA relaxation of 10% drop letter rule is welcomed

Related items