FCA extends pause to rule requiring notification of 10% falls in portfolios

The rule was brought in under the Mifid II regulation


The Financial Conduct Authority (FCA) has deferred reinstating the 10% depreciation notice requirement for another 12 months.

In March 2020, the measures were put in place to help firms support consumers during market volatility linked to covid-19 and the Brexit transitional period. Then, in March 2021, the FCA unveiled a consultation about the future of the 10% rule.

The extension has been made to allow HM Treasury and/or FCA policy work on the requirement’s future to be concluded. The 10% rule was brought in under the Mifid II regulation.

During the extension period, the FCA won’t take action for breach of services offered to retail investors provided that the firm has:

  • 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 the clients that they may not receive similar notifications should their portfolio or position values further decrease by 10% in the current reporting period;
  • Referred the clients to non-personalised communications, perhaps made available on public channels, that outline general updates on market conditions; and
  • Reminded clients how to check their portfolio value, and how to get in touch with the firm.

The regulator said that firms “must still pay due regards to the interests of their customers and treat them fairly, pay due regard to the information needs of their clients, and communicate information to them in a way which is clear, fair and not misleading”.

“If we have concerns that potential serious misconduct may cause, or has caused, significant harm to consumers, then we will consider the appropriate response, which may include opening an investigation,” the FCA added.

Welcomed decision

Tim Fassam, director of government policy and relations at trade body Pimfa, said: “The announcement from the FCA that it is extending the flexibility around the 10% depreciation notification rule for a further 12 months – first introduced in the wake of the covid pandemic last year at the urging of Pimfa – is a welcome and sensible step given the impact the Omicron variant, and subsequent uncertainty it has caused, has had on markets in recent days.

“However, we have always been of the view that the 10% depreciation rule needs further reform in the longer term. This was always a rule that had more relevance for European Union financial markets than it did for the UK and our departure from the EU presents our industry, and the FCA, with an opportunity to enact reforms that better fit our own domestic markets.

“We will continue to lobby the FCA and Treasury for changes to the UK’s domestic regulatory regime that better reflect the way our market operates.”

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