Dear CEO Letter: Coronavirus - firms providing services to retail investors - Thistle Initiatives

What’s happening?

The FCA issued its latest Dear CEO letter to retail firms at the end of March. The letter refers to the fact that the FCA has received many requests from trade associations and firms for adaptations to its regulatory approach and provides the information below to set out the FCA’s approach to a number of issues in relation to the current situation.

What do you need to do?

Client identify verification

Restrictions on non-essential travel have affected firms’ abilities to use traditional methods to verify a customer’s identity – this is an obligation under the Money Laundering Regulations 2017 and the FCA still expects firms to comply but will allow them to be flexible. During this period, it expects firms to continue to comply with their obligations on client identity verification. The MLRs and Joint Money Laundering Steering Group guidance already provide for client identify verification to be carried out remotely and give indications of appropriate safeguards and additional checks which firms can use to assist with verification. For example, firms can:

• • accept scanned documentation sent by e-mail, preferably as a PDF,
  • seek third-party verification of identity to corroborate that provided by the client, typically from its lawyer or accountant
  • ask clients to submit selfies or videos
  • place reliance on due diligence carried out by others, such as the client’s primary bank account provider, where appropriate agreements are in place to provide access to data
  • use commercial providers who compare data sources to verify documentation provided
  • gather and analyse additional data to support the evidence provided by the client such as geolocation, IP addresses or verifiable phone numbers
  • verify phone numbers, e-mails and/or physical addresses by sending codes to the client’s address to validate access to accounts
  • seek additional verification once restrictions on movement are lifted for the relevant client group

Supervisory flexibility over best execution until the end of June

The FCA expects firms to continue to meet their obligations including their obligations on client order handling and to take into account current market conditions when determining the relative importance they place on the different execution factors when meeting their obligations and the venues or brokers they rely upon to achieve best execution. It will expect firms to consider their use of different types of orders to execute client order and manage risk during market volatility.

However, the FCA has announced that it has no intention of taking enforcement action where a firm:

• • does not publish an RTS 27 (on order execution quality) by 1 April 2020, provided it is published no later than 30 June 2020, or
  • does not publish an RTS 28 and Article 65(6) reports (on execution venues and quality), provided they are published by 30 June 2020

Supervisory flexibility over 10% depreciation notifications until the end of September

Firms providing portfolio management services or holding retail client accounts that include leveraged investments are currently required to inform investors where the value of their portfolio or leveraged position falls by 10% or more compared with its value in their last periodic statement, and for each subsequent 10% fall in value. Firms have raised concerns about the impact on consumers and the operational burden of this in a highly volatile market.

The FCA has announced that it has no intention of taking enforcement action where a firm:

• • has issued at least one notification to a retail client within a current reporting period, indicating their portfolio has decreased in value by at least 10%, and
  • subsequently provides general updates through its website, other public channels (such as social media) and/or generic, non-personalised client communications. These communications should update clients on market conditions, explain how clients can check their portfolio value and invite clients to contact the firm if they wish, or
  • chooses to cease providing 10% depreciation reports for any professional clients

The FCA is adopting this approach for a period of 6 months ending on 1 October 2020.

How can we help you?

If you’d like further information, to arrange a review of your client verification, best execution or regulatory reporting arrangements, or to discuss any other aspect of compliance, our expert team is here to help.
Contact us today on 0207 436 0630 or email info@thistleinitiatives.co.uk.