The Financial Conduct Authority (FCA) has given a further six-month extension to the Covid-related 10% depreciation notification rules.
In April the regulator suspended the Mifid II rule until 1 October after receiving “hundreds of requests” from trade associations and firms concerned about how the measure will affect consumers and the operational burden at a time of highly volatile market conditions because of the coronavirus.
But as the UK faces a second wave of infections and tighter restrictions, the FCA has decided to keep the current rules for another six months – ending on 31 March 2021.
Under the rule, which is EU legislation and part of the Mifid II package of measures introduced in January 2018, discretionary investment managers must notify clients when the value of their portfolio, as evaluated at the beginning of each reporting period, drops by 10% and thereafter at multiples of 10%.
It applies 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.
But, considering the high volatility of the market during lockdown, industry players have argued that complying with the rules would have negatively impacted clients as some may make knee-jerk reactions.
See also: Andy Bell says coronavirus makes 10% rule like flagging a leaking shower on the Titanic
Amendments to the rules
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.
See also: FCA relaxing 10% rule does not mean advisers can shirk duty to clients
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